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Make high interest loans with peer-to-peer lending

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It’s hard to get decent returns on cash these days. Banks are paying you virtually no interest on your savings, and then turning around and lending it to others at a substantial markup.

What if you could remove the bank from the equation and lend money directly to people looking to borrow?

That’s the idea behind peer-to-peer lending, which is now often called marketplace lending.

I became fascinated with this business model nearly a decade ago when Prosper.com launched. The service was kind of like an eBay for loans. People would post their story and why they wanted to borrow money, and lenders could fund their loans.

Unfortunately, Texas residents like me weren’t able to fund loans on these marketplaces back then due to state regulations. Earlier this year Lending Club, a publicly traded competitor, opened its doors to Texas residents looking to make loans. I decided to take the plunge…but the model has changed a lot from the early years. [Read more…] about Make high interest loans with peer-to-peer lending

10 12-month CDs paying 1.0% or better

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percent-smallThe past several years have been dismal for savers. Many banks are paying just $1 of interest per year per $1,000 deposited.

Is it worth shopping around for higher rates? It depends a lot on how much you have socked away in savings, and how little interest your bank is paying. I searched the web to find 10 banks offering 12-month CD rates of 1.0% or better as of 10/19/15:

ELoan – 1.30% with a $5,000 minimum deposit.

CIT Bank – 1.30% with a minimum $1,000 deposit. The bank also has a high yield savings account paying 1.05%.

Synchrony Bank – 1.25% APY with a balance of $2,000 or more. The bank also offers a high yield savings account paying 1.05%.

Sallie Mae – 1.25% with a $2,500 minimum. This is the student loan group.

BankDirect – 1.21% on a $10,000 minimum deposit. BankDirect is a division of Texas Capital Bank.

Discover – 1.15%. They don’t just offer credit cards!

Ally Bank – 1.05% APY. If you think rates are going to go up sooner or you might need to pull your cash, Ally also has a No Penalty 11 month CD with a 0.87% APY.

Nationwide – 1.05%. Bumps to 1.10% with $100,000 or more.

FirstIB – 1.0% with a $1,000 minimum.

GE Capital Bank – 1.0%.

Now that I’ve done the homework for you, does it make sense to lock your money up for a year at these rates? I think it depends on the delta between the CD rate and your savings rate. At such low rates, you literally need to consider your time when it comes to opening a CD. Is it worth spending an hour opening an account, and a bit of extra time to handle the taxes, that will earn you an extra $200 a year before tax?

That’s your call.

Happy Money: How to get more enjoyment from spending

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happy-moneyIt’s natural to think that the more money you make, the more you can spend, and thus the happier you will be. But as you make more and spend more, you quickly discover a disconnect in this logic.

Happy Money is a recently-updated book (Elizabeth Dunn, Michael Norton) about the science of spending and how to make yourself happier when you spend. The principles are simple, yet we often overlook them. I’ll refer back to these principles frequently on this site, so here they are:

1. Buy Experiences. The best way to look at this is to consider the opposite first. Odds are, when you bought your current car, you were pretty stoked about it. You drove it just to drive it, to experience it. After a couple years you got less satisfaction out of it and looked at it as more of a mode of transportation.

Compare that to some experiences you’ve had, whether they were vacations or evenings out with friends. Do you have a memory or two that you remember often?

This is why you should buy experiences. Experiences give you joy well after you’ve bought them (if they even cost money). Physical goods eventually don’t give you happiness. You end up upgrading, enjoying it for a period of time again, and then continuing the cycle.

I hadn’t really thought about this before reading Happy Money. I used to think spending money on experiences was throwing away money since you had nothing to show for it when you were done, as opposed to buying a physical item.

2. Make it a Treat. Simply: if you get something too often, you take it for granted.

Remember the first time you flew first class and thought it was awesome? After your tenth time, you probably appreciated it less. You start nitpicking the first class experience and the food.

Perhaps a couple flights in economy will make you appreciate first class again.

3. Buy Time. Spend money on things that save you time, so that you can do things you enjoy with your time. One great and reasonably-priced timesaver: a Roomba vacuum.

4. Pay now, consume later. Since this site is geared to people with savings, I’m going to assume you aren’t sitting on a mountain of credit card debt. But the principle of paying now and consuming later is still relevant.

The key is to separate the payment process from the use of any major purchase, be it a vacation or a car. Buy your flights a couple months in advance. Consider paying in advance for a vacation rental. When it comes to to enjoy it, you won’t have to think about the cost.

Growing up, I was told to delay the payment process as long as possible to earn interest on the float. That’s not very relevant when bank accounts are paying less than 1% interest!

5. Invest in Others. In other words, help someone out. Donate time or money.

It is amazing how good it feels to help someone out. I’d argue that spending time helping someone feels much better than writing a check, which is a topic for another day.

No, you can’t lease a Tesla for $575 a month

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tesla-575

The Tesla Model S is a sweet — but expensive — car. Which is why the above lease offer that greets you when you visit Tesla’s website seems like a great deal.

I’ve never leased a car, but $575 a month to drive a Tesla seems like a great deal. Almost too good to be true. In fact, it is too good to be true.

After test driving a Tesla, I started to dig into the numbers. As it turns out, your total cost is going to be at least $970 a month before tax.

Tesla does a couple things to get to the $575 number.

Unlikely Fuel Savings

First, it deducts $167 for monthly gas savings. Your payment is actually $742, but Tesla says you’ll make up the difference by paying for cheaper electricity.

This $167 number is awfully generous.

First, it assumes your old car got just 20 mpg and required premium gasoline. (I’ll admit that my old car gets less than 20 mgp and requires premium gas.)

Second, it assumes you’re paying $3.90 per gallon for this gas. That might have been accurate at some point, but right now it’s significantly less.

Third, it assumes you pay $.12 per KwH for electricity to charge your Tesla and use the company’s Superchargers for 10% of your charging.

Maybe I’m unfortunate, but in my hometown of Austin, $.12 per KwH isn’t close (at least during the summer). Some electricity providers are starting to offer off-peak charging, which could make this number reasonable if you charge your car overnight.

I personally don’t spend $167 on gas in an entire month, so I can’t save that much. But long distance commuters might find greater savings.

Bottom line: you’ll likely get gas savings, but the amount stated is an edge case at today’s gas prices.

Down Payment and Fees

The other bit of trickery Tesla is using is assuming a $5,000 down payment. This is like the car salesman asking “What do you want your payment to be?” because they can make it really low by playing with the variables.

According to Tesla’s website, you’ll also pay $3,195 in other charges due when you get the car.

Add it up and your 36-month lease costs a total of $34,907, which is $970 per month. This assumes you get the lowest priced model (sans even leather seats) and drive only 10,000 miles a year.

With leasing, there’s also a big sales tax factor. I live in Texas, and here you have to pay sales tax on the full value of the car up front, so I’d have to chip in another $4,375.

Suddenly $575 a month has become more than $1,000 in total cost, even if you live in a low sales tax state. You’ll save some money on gas, but most people should just calculate that as a small bonus.

The Model S is an amazing car. If you can afford the $70,000 starting price tag, I’d definitely recommend test driving one. Just don’t think you’ll be able to drive away with one for $575 a month.

Staying the course in a down market

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down stock marketIt’s funny how the old adage “Buy low, sell high” is rarely practiced.

When stock markets fall, many people sell. When stock markets rise, they buy.

I used to run a site about college savings plans. The site had an email list, and I noticed the number of people who unsubscribed from the list spiked during the “great recession”.

When unsubscribing from the list, people were invited to type a reason they were no longer interested in information about college savings plans. Here are some paraphrased examples people submitted:

“I just don’t feel now is a good time to invest in the stock market.”

“I will invest when I’m more confident in stocks.”

“Not investing right now.”

When the stock market rebounded, these unsubscribes and excuses went away.

People were doing what we often do, but not what we should. They were avoiding the markets when the DOW was at 7000, but buying when it crossed 15,000.

I was proud of myself during the previous market meltdown in the great recession. Having been personally affected by the dot com crash, I recalled that everything bounces back. So I kept investing as the markets fell.

While I’m patting myself on the back for that, I’m kicking myself for getting nervous when stock markets shot up later.

They’re overvalued, I told myself.

So I took a lot of money off the table when the DOW crossed 12,000.

Oops.

Over the past month we’ve seen another fall in share prices, but it has been rather small in the grand scheme of things. That’s why I’m continuing to invest now, even though there’s certainly downside risk.

If you’re investing for the long haul, you shouldn’t try to time the markets. They will go up and down. It will be painful to watch, but time is on your side.

But how do you do this in practice? How do you watch as your brokerage account balance drops?

A key is to tune out what your investments are doing. If you’re like me, you use Quicken or Mint to track your finances. It’s a great way to keep on top of your money. But is it really helpful to know the balance of your retirement accounts every day?

No. So here’s one way to stop checking your retirement account balances every day: Uncheck the box in Quicken that updates the value of your retirement accounts.