April 2007 Income Statement

We went way over budget again. Darn it!

To our credit, it was not because we spent frivolously. There were numerous one-time, annual, and prepayment expenditures that brought our total expenses for April to $7,581.50 (click on spreadsheet below).

On the positive side, my wife netted an extra $1,147.24 in commissions, we had $127.55 in “other” income (see spreadsheet notes), and our interest income doubled to $11.08.

May is forcasted to be a lighter month for us expense wise. If nothing unforseen pops-up (yeah right), we should spend roughly $1,300 less than we did in April.

April 2007 Net Worth Update (+$3,145.07)

I didn't expect us to match our huge net worth increase in March, but we had a good net worth increase in April (click on the spreadsheet below). Our total net worth is now $6,438.50, well on our way to our 2007 goal of $22,000.

Some highlights from April follow:

• The nice boost to our net worth this month came thru a $1,147.24 (after taxes) commission check that my wife earned.
• We deposited $630.00 into our Emigrant Direct savings account for Roth IRA funding (once we hit $3,000 will be moved into Vanguard 500 Index Fund Inv). We also restarted my company 401(k), albeit at a measly 2% of my gross pay. Our retirement investment focus for 2007 is to fully fund our Roth IRA’s, and put any “extra” money into my 401(k) plan.
• We paid off our American Express credit card.
• I took $50 from my April fun money ($180/month) and deposited it into our ING Direct account. I hope to get $500 saved up to speculate with in the stock market (more for fun/education than as an investment purposes).
• We had numerous large expenses in April (noted in the spreadsheet) that totaled $1,219.45.

I have added a 2007 net worth goal meter to the blog (upper right hand corner) that will provide a quick reference on our progress.

Thank God for the great month and hopefully we can duplicate it again in May.

Good Prospective Car Buyer

I have been trying to sell my car for awhile now in an effort to reduce our monthly expenses and increase our net worth. Currently, we pay $883 a month in car payments for our two vehicles.

I spoke to a lady today who seems very interested. She called twice and sent me two emails within a 24 hour period. After a long discussion with her on the phone, we made a tentative plan to meet on Wednesday for her to see the car. She actually owned the same vehicle, but just totaled it in an accident. The good news is that her insurance company gave her a check to get a new vehicle.

Of all of the prospective buyers I've had, this one seems the most determined and able. In fact, she told me if someone makes me an offer before we meet on Wednesday, that I should call her. I am selling the car for $18,000 and plan to purchase a vehicle (with similar mileage) that costs $11,000-$12,000. This should reduce my monthly payments by roughly $150 and also reduce my insurance costs. Wish me luck!

What’s In Your Wallet?

I love Capital One’s "What’s in your wallet?" ad campaing; they’re consistantly funny. While I’m not going to sign up for their credit card just because I enjoy the commercials, they do ask a good question. So, here’s what’s in my wallet:

Driver’s license – Of course.
Picture of wife – Gotta have it.
$10.00 bill – I prefer to pay using my cash back credit card, so I don’t carry much cash.
Post-it note with Travelocity vocher code – Vocher code was given to me when Travelocity made a mistake on a trip. I keep forgeting to use this; I don’t even know if it is still valid.
Jambacard - Jamba Juice gift card that probably has $0.73 left on it. I love smoothies!
Blockbuster Membership Card – Gets us movies.
Blockbuster Online E-Coupon for a free movie – We receive these monthly as part of our Total Access membership
PetsMart PetPerks Card – Gets us discounts on all of the stuff we buy for our puppy.
VonsClub Card – I never do the grocery shopping, so I don’t know why I have this.
Passport Service Information Card – In case I lose my passport.
AAA Roadside Assitance Card – In case I have car trouble.
500 minute PrePaid Phone Card – In case I don’t have cell phone service or change to make a phone call.
Health Net Insurance Card – Needed for doctor visits.
Optometrist’s business card – I must have grabbed this during my last visit.
Citi Dividend MasterCard – Cash back rewards card used for household expenses.
HSBC Platinum MasterCard – Cash back rewards card used for business expenses.
Mellon Commerical Visa Card – Company credit card, rarely used since I prefer to place charges on my cash back credit card and get reimbursed.
San Diego County Credit Union Visa Card – I do not use, but has a $10,000 credit limit and long payment history.
San Diego County Credit Union ATM Card - Used to access our joint savings account.
Washington Mutual Gold Debit Card – Used to access our joint checking account.
Bank of America Platinum Check Card – Used to access my personal checking account.


What have I learned from this exercise? That I have too many cards! I am ditching the following:
San Diego County Credit Union ATM Card - we only have $50 in the account to keep it open so that we can have access to the credit union for future auto loans.
Optometrist’s business card – the phone number is already programmed into my cell phone.
VonsClub Card - I don’t use it.

Picture me holding a 4” thick wallet, with a funny expression on my face, as I throw these 3 cards into the trash can, and say in a grumpy voice, “What’s in your wallet?”

RSS Feed

1MansMoney now has an RSS feed! I just learned about RSS feeds and love the convenience they provide. Inside of visiting your favorite blogs each day to see if there is new content, you can subscribe (for free) to your favorite blogs and visit one website to see updated content from all of them.

To subscribe to 1MansMoney’s RSS feed, click on the icon in the upper right hand corner of this webpage. You will be prompted to choose a reader (I use Google Reader) and create a user id and password. Then, whenever you want to see if there is new content from 1MansMoney and other blogs you subscribe to, you just log onto Google Reader. What a time-saver.

Real Emergency Fund

I think it’s great to have an emergency fund for unexpected events, such as sickness or job loss. However, if there were ever an emergency that took out the power for a long period of time, such as a major earthquake, it is likely that we would be unable to access our saving accounts or use our credit cards.

My wife and I rarely have more than $20 in cash on us, because we try to charge most of our expenses to our cash back credit cards. This puts us in a tough position if we needed to buy water or gas during an emergency. That being said, we decided to take $150 out of our savings so that we have cash available at home. We requested small denominations ($100 in one dollar bills and $50 in five dollar bills) so that we do not have to worry about getting change.

The money will be hidden in our condo and hopefully never used. We plan to buy a safe within the next year for my wife’s jewelry, important documents, and this emergency cash.

Gotta Love Easy Money

I just received confirmation from HBSC that our $25 cash back redemption request has been received, and our check will arrive within 15 business days. Not a big sum of money, but the only thing I had to do to earn it was charge my business trip expenses to my HBSC rewards Mastercard (which my company immediately reimburses me for).

My wife and I also have a Citi Dividend Platinum Select MasterCard that we use for most of our household expenses. The card is paid off monthly and earns us up to 5% cash back. In fact, we should be able to request a $50 reward from the Citi MasterCard next month. Easy money.

Financial Websites

I really enjoy searching the web for high quality financial websites that I can learn from. It's amazing how much information is available online. Below is a list of sites that I visit frequently.

Early Retirement Forum
Finding this site started it all for me

2million
My favorite personal finance blog

Morningstar
More finance information that you can ever read

Bloomberg Calculators
Many useful financial calculators

Vanguard
Offers a wealth of resources and low expense Roth IRA choices

Why Don’t We Talk About Money?

Other than my family, I only have a couple of friends that I talk with about money. Even then, our conversations are usually limited to vague references, and not actual numbers. I can see pros and cons to keeping money matters private.

Pros

• Less chance of jealousy if your financial situation is better than another person's



• Less possibility of embarrassment if your financial situation is worse off than another person's



• Less likelihood that someone will hit you up for a loan / try to steal from you
  

Cons

Lack of mutual learning thru discussion

Could promote “looking wealthy” rather than “being wealthy”

May contribute to a ignoring, or not giving enough attention to, financial issues

As you can see, I can argue both sides, however, I lean more towards wanting to talk about money - this blog, although anonymous, is a great example.

One exception for me when it comes to talking about money is discussing compensation with co-workers. I don’t do it and wouldn’t recommend it.

Net Worth Milestones

To achieve our net worth goal of $1.5M in 20 years, we need a plan. Below are our net worth goals for each year (click on spreadsheet to enlarge). This plan assumes an average annual return of 8%, and our ability to increase our investments as our careers develop.

As you can see, if we are able to hit our targets, we are still almost $300K short of our $1.5M goal. I guess that’s why they call them "stretch" goals.

Roth IRA vs 401(k)

We currently have $12,688.05 invested in my company's 401(k) plan and $630.00 saved up to begin funding Roth IRA’s for my wife (minimum required to open a Vanguard Roth IRA is $3,000).

The 401(k) money was accumulated (no company match) over the past 5 years of off and on investing without a plan or a goal. Now that we do have a plan and a goal, we have decided to focus on fully funding our Roth IRA’s this year, while still contributing a small amount (2% of my salary) to my company's 401(k) plan. The Roth IRA money will be invested in the Vanguard 500 Index Fund.

The main reasons we choose to focus on the Roth IRA’s are:

• The average expense ratio of Vanguard 500 Index Fund is just 0.18%, while the average expense ratio of our 401(k) investments is 1.48%


• The Roth IRA principal can be withdrawn penalty-free, while the 401(k) has limited loan availability


• The Roth IRA has no mandatory withdrawals, while the 401(k) withdrawals must start at 70-1/2
  

Since Roth IRA contributions are limited to $4,000 in 2007 (increases to $5K in 2008) we will be investing a total of $8,000 for my wife and I this year.

Northern California Coast Trip

Northern California Coast Trip

We just returned last night from a friend’s wedding in Northern California. It was a great time, but we spent almost $400 for the 2-1/2 day trip. Our portion of the cabin was $160, our share of the gasoline (we drove) was $115, and meals totaled roughly $100.

The Northern California coast is absolutely beautiful – lush green countryside, quaint cabins, and dramatic ocean views. The small town they had the wedding in was so remote that our cell phones did not work, internet access was via dial-up, and our cabin did not have a TV. Not having these distractions really helped us better enjoy the beautiful scenery. Of course, the first thing I did when I got home was turn on my computer and check on our financial accounts. Old habits die hard. . .

Nice Commission

My wife just got word today that the commission she is expecting on 4/20 will be more than we thought. She’s getting $1,599.68 ($1,147.24 after taxes)!

We have earmarked the money for the following:

$656 to pay off American Express
$200 to Emigrant Direct emergency fund
$171 to church
$120 to buy wife new jeans (she earned it)

What a blessing!

Prosper.com Update

I posted last month about how we were gambling with some play money in Prosper.com. We currently have $100 spread over two $50 loans and an average return of 12.21%. Both borrowers are current with their payments.

Loan 1: https://www.prosper.com/lend/listing.aspx?listingID=109590

Loan 2: https://www.prosper.com/lend/listing.aspx?listingID=112548

That all sounds pretty good, but one drawback of the system is that you do NOT earn interest on money in your prosper account (where the borrower’s payments are deposited) and CANNOT withdraw less than $25 at a time. So, unless we choose to invest more money in Prosper so that we can make another loan (also a $25 minimum), our money is stuck in a non-interest bearing account. Add to that the risk eliment of a borrower defaulting and I’m starting to think it is not really worth it.

$25 For Opening An ING Direct Savings Account

One of the simplest ways to get your money working harder for you is to open a high yield online savings account. We use Emigrant Direct and ING Direct because I have read many good things about both banks in online forums, and have been very happy thus far. These banks are FDIC-insured and pay a much higher interest rate that your typical brick and mortar bank.

If you would like to receive $25 for opening a high yield ING Direct savings account, send me an email and I will forward a referral link to you.

Full disclosure:

• You have to fund the account with an initial deposit of at least $250.


• I will get a $10 thank you bonus for referring you.


• To qualify for the $25, you must use the link in the email.

Counting Easter Egg Before It Hatches

My wife just did some back of the napkin calculations for her commission check this month. If all of her orders go thru as expected, she should receive a $1,033 commission check (less taxes) on 4/20. This would be a sizeable boost to our net worth for April. Go wife and thank God! We’ll use the money to immediately pay off our American Express credit card, leaving us with just one credit card balance of roughly $1,800.

I love counting our eggs before they hatch. Happy Easter!

Stong Financial Foundation

Simple ideas for a strong financial foundation:

Live below your means
I believe this is one of the most important steps to a strong financial foundation and, for me, one of the hardest. If you try to keep up with your rich looking friends and associates, you may end up like most of them: lots of nice stuff, but a low net worth. Every dollar that you save is worth more than an extra dollar earned because the extra dollar earned is taxed.

Start an emergency fund
Job loss, health issues, and expenisve repairs are financial blows that can affect us all. Open a high yeild savings account (Emigrant Direct, ING, etc.) and start saving for the unexpected.

Aviod credit card debt
Credit card debt is the path to financial ruin. Been there, done that. Believe me when I tell you that digging the hole is very, very easy and climbing out is often a long, hard fought battle. The only thing we use credit cards for now are monthly bills because we get cash back from our Citi credit card. Don’t do this if can’t pay off the balance in full each month.

Track spending / create a budget
It’s easy to overspend if you don’t know what you’re spending. Track spending for a few months and use this information to create a budget. The budget will help keep you on track and hopefully help you find areas where you can reduce spending.

Learn all you can about investing
Most financial planners are more interested in their commission, rather than what is in your best interest. If you educate yourself, you can save A LOT of money and probably do just as good a job, if not better.

Invest at least 10% of your gross income
The future is coming whether you want it to our not. The magic of compound interest can make your consistent contributions grow into a large nest egg. Take advantage of tax sheltered retirement account such as a 401(k) and/or Roth IRA. If your employer offers a 401(k) with a company match, take advantage of the free money.

Target Retirement Date

Our ideal target retirement date is 2027, twenty years from now, when I am 52 and my wife is 43. Realistically, this goal is going to be a stretch, but we have a long enough time frame that I think it is possible under favorable conditions.

If we believe that we can live on $60,000/year when we retire, then using a 4% Safe Withdrawal Rate (SWR), our nest egg goal is $1.5M. However, with inflation averaging 3.43% annually, our nest egg may need to be substantially larger.

We will refine and better define our plans/goal as time goes on. Some other challenges in reaching our goal include being able to purchase (and pay off) a home and finding affordable long term health care. Our desire to have children will also affect our saving/investing rate, but won’t stop us from having them.

I guess if I have to work until 53, I could live with that.

Frequent Flyer Miles

I have been traveling for business for 6 years. It took me 5 years to finally bother to sign up for frequent fly miles, even though I have had plenty of co-workers and friends recommend it. I felt like I didn’t want to have to arrange my schedule to fly with a certain airline. That was very, very dumb.

In the last 12 months, I have accumulated 31,368 miles on Delta SkyMiles and 11,316 on American Airlines Aadvantage. .. . for doing nothing more than enrolling and entering my account number when purchasing tickets. That is enough points for a free flight in the continental U.S., Alaska, Canada, Caribbean, and Mexico on Delta (see chart) and a free upgrade (see chart) on American Airlines. Best of all, since I signed up with Delta and American Airlines, I have not had to bend my schedule to fly on these airlines.

I’m kicking myself for all of those years that I flew and did not accumulate frequent flyer miles.

Short Term Financial Goals

Below are some of our short term financial goals (1-5 years). I have checked off the items we have completed.

a Pay off 401K loan

a Pay off credit card debt with rate interest over 0%

a Save up 2 weeks worth of vacation (in case of job loss / unable to work)

Pay off 0% interest rate credit card debt

Open and fully fund Roth IRA for wife

Open and fully fund Roth IRA for husband

Sell Car 1

Pay off Car 2

10% (of gross income) contribution to 401(k)

Build emergency fund to $12,000

We’ll be selling Car 1 and funding Roth IRA’s for my wife and I in the coming months, so more checkmarks will be added soon.

March 2007 Income Statement

We had a great net worth increase in March, but did a poor job staying within our budget. We were sadly over budget $775.68 in March (click on spreadsheet below).

A lot of non-monthly bills hit in March, such as both cars needing servicing, buying a baby shower gift, enrolling wife in new insurance program, and a mini vacation. That's not a good excuse though because we also went over budget for some of our standard monthly bills.

Time to take back some ground by coming in under budget next month!

Stay tuned. . .

March 2007 Net Worth Update (+$6,462.28)

A lot of progress was made since our February 2007 Net Worth update. We have a positive net worth! Thank God! It’s a great feeling to finally have a positive net worth, even if it is only $3,293.43.

I can’t believe we were able to post a $6,462.28 change (click on spreadsheet below) to our net worth in one month. Over half of this increase was due to our Federal and State tax refunds ($2,044) and my wife receiving a $1,463 tuition reimbursement.

Here are the highlights from March:

• Our 401(k) has recovered pretty well from the $1,000 hit it took during the February stock market plunge
• We have $100 (starting small) invested in prosper at an average rate of 12.23%.
• Our emergency fund was given needed attention
• We made some serious headway on paying down our credit card debt. All of the remaining credit card debt is on 0% interest credit cards
• My wife’s student loan balance also was hacked down by the tuition reimbursement that she received
  

I don’t expect us to be able to keep up this kind of a pacing in the coming months, but we’ll sure try.

Business Travel

I am currently on a business trip and have been thinking about the money I save when I travel.

I travel 6-7 times per year, usually for 1-3 weeks per trip. While it's hard work being on the road, there are perks. My company reimburses me for my travel costs (i.e. hotel, rental car, meals, etc.). I also use a 1-2% cash back credit card for all trip costs that helps put a few extra dollars directly into my pocket. In addition, my American Airlines Aadvantage and Delta SkyMiles frequent flyer accounts earn me free trips or upgrades.

When I first began traveling for work, I did a poor job of keeping receipts (for reimbursement), didn't use cash back credit cards, and didn't have frequent flyer accounts. I often spent more personal money while traveling trying to entertain myself. Now, I make sure my hotel is near nice restaurants and has high speed internet.

While on my business trips, I save money on food, gas, and entertainment. It's also nice getting away from the office for a few days.

Cable/Internet Savings

My wife cancelled our old Time Warner cable/internet plan and restarted our service to take advantage of a 2-year promotion they are running for digital cable. She was even able to coordinate it so that there was no interruption in service.

We just received our first bill, only $72 compared to the $94/month we were paying previously. This represents an annual savings of $264 for us. With digital cable we get many additional channels including music channels and On Demand. Plus, Time Warner provided us an HD box so that we can access High Definition channels. Let me tell you, the HD box alone was worth the effort. We purchased a 42” Panasonic plasma a year ago and the theater-like picture of HD is absolutely awesome. Tonight, we were getting a kick out of switching between watching American Idol on Fox and American Idol on Fox HD. What a difference.

Affordable Movie Rentals

There is nothing like relaxing on the couch with your girl, a cocktail, and a great movie to watch. At $4.95/movie for new releases, movie rental costs add up. We’ve thought about signing up for Netflix, but never liked the idea of having to wait for the next movie to arrive in the mail. Blockbuster Total Access solved that problem by offering low cost online movie rentals, and the ability to pick-up rentals at your local Blockbuster.

We chose to go with the $14.99/month plan that allows us to have two online movies out at any time.

Here’s how it works:

1) Select movies online and add them to your queue
2) The movie is mailed within 1 business day
3) After watching the movie, mail it back in the supplied envelope or return it to your local Blockbuster
-Each movie returned to the Blockbuster store in the supplied envelope is good for one free in-store movie rental
4) Once the movie is scanned into the system, either at the store or when they receive the mailed return, the next movie in your queue is mailed

We plan to always return the online movies to our local Blockbuster so that we maximize the number of movies we get per month. You’re also given one free in-store movie rental each month. So, if you run out of online DVD’s to return for in-store rentals, no problem.

You could conceivable get 25 movies a month for the price of what it would regularly cost to rent 3 new release rentals. I doubt we would ever have that much free time or even the desire to watch that many movies. Nonetheless, I’m sure we’ll watch our fair share.

Investing Plan

My wife and I have been putting investing on the backburner while we paid off some debt this past year. We feel that we’re in a position now to begin investing again.

We currently have $12,242 invested aggressively in my 401(k), broken down as such:

25% - JH Lifestyle Aggressive (1.15% expense ratio)
25% - Pacific Rim Fund (1.72% expense ratio)
25% - Real Est. Securities Fund (1.54% expense ratio)
25% - Natural Resources Fund (1.51% expense ratio)

We also have $700 in ADVENTRX Pharmaceuticals stock.

We’re choosing to focus on fully funding Roth IRA’s thru Vanguard, mainly because my company’s 401(k) plan has high expense ratios and no company match. That being said, we’ll still be contributing 2% to my 401(k) plan beginning mid next month.

Roughly $630/month (more some months) will be deposited into our Emigrant Direct savings account until we have the $3,000 minimum required to open a Vanguard 500 Index Fund. The Vanguard 500 Index Fund closely approximates the S&P500 which represents 70% of all U.S. publicly traded companies, and is considered the benchmark for U.S. equity performance.

We’re shooting to invest 10% of our gross income for the year because we need to build up an emergency fund and want to pay down some additional debt. Next year, we should be able to increase our investing.

Credit Reports and Credit Scores

My wife and I order our credit reports and credit scores from time to time to keep tabs on things, and, more importantly, make sure we are not the victims of identity theft.

Below is a table (click on spreadsheet) that I began compiling recently of our credit score track record. BTW, I received numerous copies of my credit reports in 2005 because we were preparing to purchase our condo. As you can see, my score dropped considerably around 3/31/05 because I was disputing a collection on my record. While I had heard that disputes temporarily hurt your score, the extent to which it dropped was startling.

What was I disputing? Well, back in 2003 I informed all of my credit card companies that I had moved and provided my new address. I received a disturbing call a few months later from a collection agency stating that I hadn’t make a payment on my HBSC credit card for months. My finances were in such disarray at the time that the only trigger for me to make a payment was to receive a bill. I contacted HBSC to find out what happened. I was told that when they updated my address in the system they failed to also update the address my bill was sent to. That makes no sense to me, but I also accept that I’m responsible for keeping my payments current, whether I receive a bill or not. I immediately paid off the $360 balance and was assured by the collection agency that my credit wouldn’t be dinged. I didn’t check my credit reports until the end of 2004, and as it turns out, the HBSC credit card showed up as a derogatory account. It took a couple of months of headache and heartache to get the necessary letter from HBSC so that my credit report could be corrected.

Our scores are at a pretty good place now. Out of the maximum score of about 850 (each credit bureau has its own range / methods for calculating your score), we’re not doing too bad. For tips on improving your credit score check out check out Liz Pulliam Weston's article 9 ways to build a killer credit score.











NOTE: There’s a large gap during which I didn’t track of my wife’s credit report scores.

You can get a free credit report once a year from annualcreditreport.com. Speaking of which, it’s just about time for us to check on our reports. . .

Emergency Fund

We keep our emergency fund in a high yield (5.05% APY) Emigrant Direct savings account. We currently have a whopping $1,541 in the account; our goal is $12,000.

Most financially savvy people recommend having enough money in your emergency fund to cover 3-6 months of total expenses. I personally do not want to tie up that much money in a savings account. I’d rather pay down debt or invest the money. Our goal of a $12,000 emergency fund represents 2 months of total expenses for us. If we have an emergency that goes above that amount, our credit cards would then be used. In addition, I have 2 weeks of vacation saved up that can be cashed out for about $2,000, if needed.

Monthly deposits of our 'extra' cash will be made into the emergency fund. In addition, we will deposit $302/month for condo taxes and roughly $630/month for funding our Roth. Our condo taxes are due in December and April each year, and the Roth money will be used to open Vanguard Roth IRA accounts for my wife and me once we have $3,000 (minimum required for Vanguard 500 Index Fund). These monies are not really part of the emergency fund, but will provide some short term cash if needed, and gain some decent interest before we actually need them

We’ve got quite a ways to go, but my wife’s commission checks and our annual tax returns will help us get there.

Windfall

Great news! We just found out my wife is going to receive a $1,463 tuition refund. She had to take out a student loan when we got married because our combined income meant she no longer qualified for enough financial aid. As it turns out, the information the university had on file for her cost of living was too low. Thus, she's getting part of the tuition refunded.

Between this refund and our tax returns, we’re looking at roughly $3,500 in extra income this month. This money will be used to pay down some debt and replenish our Emigrant Direct savings account that was somewhat decimated after paying a $1,809 condo tax bill this month. If everything stays on track, I'll post a positive net worth report for March.

1st loan on Prosper.com

We’ve just completed our first loan on www.prosper.com. If you’re not familiar with this website, it is known as the e-bay of loans.

Basically, you deposit money in your Prosper account (similar to PayPal), browse the Prosper website for a borrower you want to lend to, and bid on the loan. If you win, the money is pulled out of your account and loaned to the borrower (3-year loan). Each month, Prosper then pulls monthly payments (with interest) out of the borrower’s account and transfers it to your account. Pretty simple.

You can bid as little as $50 each time - Prosper complies all of the winning bids to fund the loan. For example, a $2,000 loan could be made up of forty $50 winning bids from 40 different lenders. However, if a loan request is not 100% funded by the time the bidding clock expires, it does not get funded. By bidding small amounts over many different loans, you reduce your risk. I was surprised to find that there are lenders with hunderds of thousands of dollars invested in Prosper loans. Based on Eric's Credit Community, a site devoted to statistics and information about Prosper.com, it looks like a lender by the name of Pensioner is leading the way.

There certainly is an element of risk when you loan money to a perfect stranger in an unsecured loan. Prosper supplies a good deal of information to help you make an informed decision. You have access to the borrower’s credit information (delinquencies, revolving credit balance, etc.), estimated default rates for the various credit ratings, estimated interest rates for various credit ratings, etc. Borrowers provide a reason for why they need the loan and some supply a photo and monthly budget. Borrowers can also join groups to help give them credibility. If they default on the loan, not only are they sent to collections (all handled by Prosper and a third party collections agency) but the group rating is brought down as well.

What’s in it for Prosper? They make 0.5%-1% from the lender for servicing the loan and a 1% or 2% loan closing fee from the borrower.

Here’s the bid we won: https://www.prosper.com/public/lend/listing.aspx?listingID=109590

We like the borrower’s A credit grade, 29% debt to income ratio, and the story he provided for needing the money. And of course, the 13% interest rate doesn’t hurt.

We’re going to do a couple more test loans; I’ll keep you posted on how it goes.

Above Average Income, Above Average Expenses

My wife and I make a combined $109,350 per annum (not including her commission pay). Not more than some, but certainly above average. The tough part though is that we have a very high monthly burn rate - spending close to 90% of our net income each month. I’ve included our monthly budget below (click on spreadsheet).





















*Note: This budget does not include our investments/savings.

We spend over 2 times more per month than some couples we know. Granted, most of our friends rent instead of own and condo costs make up 40% of our monthly bills. Nevertheless, we need to slow the bleeding so that we can put more money into our investments/savings.

We plan to make the following changes next month:

• Sell Car 1

• Buy a replacement car for ½ the price of Car 1 - $200/month savings

• Switch to a lower cost Internet/cable package - $20/month savings

• Look into combining auto insurance and condo insurance

• Look into lower cost birth control

Further down the road, we will have the credit cards (0% interest currently) and auto loans paid off. Of course, we also want to sell our condo and get a house in 4-5 years, so that money will be used to help cover the higher housing costs.

Paying off credit card debt from years past

I had little credit card debit during college and was actually very fugal. My parents get the credit for that, as they taught me early on to appreciate the value of a dollar. After college, however, I moved from the central valley to San Diego and the wheels fell off the cart. I started using credit cards to help make ends meet. The credit cards were addicting, and eventually, I was using them to fund a lifestyle well above what I could afford. I went out with friends nightly, traveled, and got expensive new hobbies. . . all on plastic. I remember one truly low point, when I received a new credit card in the mail with a $5,000 limit, and maxed it out buying accessories for my truck the same day. Astonishing? Irresponsible? Probably even more so if you knew that my truck was barely worth that much before I bolted on all of the new “make-up”. I got to the point that I was paying only the minimums each month on all six of my credit cards. I was never late on a payment, but I was also sinking further and further in debt.

Fast forward to 2004
As my relationship with my girlfriend was developing, and it was obvious that marriage was in our future, I had to share with her my terrible secret - I was bringing over $30,000 worth of debt into our relationship, and no plan of how to pay it off. I must be better looking than I thought because she stuck around, and has been extremely supportive and understanding. As of today, my credit card debt is only $3,475.38, and dropping at an amazing rate. As weird as it sounds, I actually enjoy making credit card payment now because I love seeing the balance whittle towards zero.

The approach I’ve taken to paying off my unsecured debt is as follows:

• Quit making charges to the credit cards


• Apply 90%+ off my disposable income to the highest interest rate card (while paying the minimums on the other cards)


• Once the highest interest rate card is paid off, do the same with the next highest interest rate card (repeat until all credit cards are paid off)


• Whenever possible, transfer debt to lower interest rate cards, or better yet, 0% interest rate cards


• Request cash gifts for holidays/birthdays and apply them to credit card debt


• Sell useless items on craigslist.org or ebay.com and apply proceeds to credit card debt


• Increase income (easier said than done, but I went from $40K per annum in 2004 to $66K+ per annum in 2007)

Some other suggestions I have heard, and why I choose not to use them:

• Cut up all credit cards - Not for 1MansMoney because we do not have an emergency fund yet.


• Pay off the small balances first (for a sense of achievement), then attack larger card balances - Not for 1MansMoney because I can do math and know that you want to pay the higher interest rate cards first, regardless of the balance size.


• Debt consolidation - Not for 1MansMoney because there are too many debt consolidation horror stories.


• Store credit cards in the freezer to eliminate impulse purchases (the cards supposedly can’t be swiped for a few hours after freezing) - Not for 1MansMoney because this gimmick wouldn’t stop me from purchasing online.

To get an idea of how vigilant I have been with my debt payments, check out the one year payment history for a credit card I just paid off (click on spreadsheet below):























* NOTE: As you can see in the balance column, some charges were made to the card from time-to-time. Hey, nobody is perfect.

Sacrifice, sacrifice, sacrifice. It’s worth it to get out of the strangle hold of debt and start building your net worth.

February 2007 Net Worth

I will be updating our net worth on this blog at the end of every month.

Below is our net worth for February 2007 (click on spreadsheet). I realize we're half way thru March already but wanted to use this as a starting point. As you can see, we currently have a negative net worth. Nowhere to go from here but up.

February Notes:
Purchase price used for condo value

Disclaimer

1MansMoney.blogspot.com's disclaimer:

If it’s not completely obvious, I am NOT a financial professional. The information you find on this site should not be considered financial advice. Before making financial decisions, do your own homework or hire a certified financial planner (if you’re lazy).

First, some background information

My amazing wife and I have been married for one year. When we met over two years ago, I was in bad shape financially. I owed $27,000+ in credit card debit and $4,000 to my parents. My problem was that I always spent more than I earned, and figured that I’d just catch up later. Unfortunately, later never seemed to arrive. My wife (girlfriend at the time) woke me up to the fact that I was in over my head, and I needed to change my ways and pay off my debt.

Substantial progress was made (another post, another time) and I am happy to report that we were able to by a one bedroom condo last year. As a new home owner, I began doing more financial research online, and stumbled across an early retirement forum that got me hooked on the idea of financial independence. From that point, I began scouring the web for tips and tricks on how to get ahead and have our money work for us. I plan to share with you what I’ve learned thru long nights glued to my laptop. Believe me though, it is an education in progress. Thankfully, my wife is completely onboard and, in a lot of ways, leading the way for us.

Just getting started

We are a young couple in Southern California, I’m in my early thirties and my wife is in her early twenties (lucky me). I plan to use this blog to outline our path from a negative net worth to financial independence and early retirement. I’ll rely on all of you to act as a sounding board for us. If something we scheme up is completely out of left field, please let me know. In turn, I hope you will find in this blog strategies that you can use to improve your own financial picture.