Author Archives: thefinancialjourneyman

About thefinancialjourneyman

Deciding to be free: My Journey toward financial independence

Next Steps to Take After Paying Down Student Debt

When you have finished paying off student loans, it is time to start building your wealth. It’s also time to achieve some of life’s most important milestones.

But first, I want to talk about the negative effects that student loans can have on your future.

There are many people that go to the bank to buy a home with tens of thousands of dollars of student debt on their shoulders. The loan officer looks at the debt and you can almost see the look of disappointment in their eyes because they are going to have to tell you that the student loans are driving up your debt-to-income ratio.

If you say, “but my loans are deferred” or “my loans are in forbearance,” the loan officer is going to look at you and tell you that it doesn’t matter because the debt has to be paid back eventually. At some point, while owning a home or car, the repayments may begin on your loans. That consumes part of your income. The bank doesn’t want to take the risk of you not having enough income to make your payments to them.

It is devastating, and it happens every day.

To keep this from happening to you, it is best to pay down your student loans as fast as you can so you can enjoy buying a home or new car without receiving bad news while sitting at the loan officer’s desk.

Think About Retirement

Another milestone that student loans can interfere with is investing. When you’re dealing with student loan payments, it’s difficult to put money into anything else. Of course, you can increase your income with a second job or find side gigs like I did. However, I still didn’t have a lot of room for investing until the student debt was gone.

Investing can take many forms. You can invest in stocks, bonds, or mutual funds. You can even invest in real estate, the mortgage market, or business ventures. There are many things that you can do with your money when you have the funds to do it. Think about being able to retire early or just retirement in general.

The last thing you want to do is retire and find that you don’t have enough income. There are many senior citizens filing bankruptcy because of pensions that fall short, social security that isn’t enough, and medical benefits that are still too expensive.

Think About Your Family 

With student debt gone, it is also easier to expand your family on the financial end of things. When you don’t bring children into debt, you’re able to focus more on the financial needs of your child.

It is difficult to bring a child into a debt situation because so much of your income has to be put into debt while meeting the needs of your family. Of course, it can be done. But do you want to go through that struggle if you don’t have to?

Of course not!

Regardless of what phase of your life you are in, it is important to pay off your student loans quickly. Those high balances are holding you back in more ways than one. Many good people who went to college to do something meaningful and make a good income are plagued with debt for a while after graduation. They make their minimum payments but still pay the collateral consequences of having the debt.

It can be heart-wrenching to struggle or be told “no” by a bank when all you’re doing is what you’re supposed to do.

The fact is that you need to go above and beyond what you’re supposed to do to get ahead as soon as you possibly can.

Even if you already have a family, a strict budget and some discipline can help you pay down the student debt so you can start working on other milestones in life. It’s best to pay off debt as soon as you can, but don’t ever think you are too late. People thinking that they are too late causes them to not be aggressive with their debt when being aggressive can be one of the best things they ever do for themselves and their family.

Jacob runs Dollar Diligence where he blogs about debt repayment, saving money, and side hustles. For more advice and content, follow him on Twitter.

 

10 Years Later

This week, my wife and I celebrated our 10th wedding anniversary.  It had a surreal feel to it.  It is hard to imagine that 10 years have gone by.  In all honesty, it has gone by in a flash.  This post is a brief review of the past 10 years.

Our Wedding day

My wife and I were married on August 10th, 2007.  It was the best day of my life.  Sorry, if I sound cliché, but it was the day I married my best friend and the greatest person who I have ever met.

Even though it was 10 years ago, I remember the day like it was last week.  Our wedding was on a Friday night and it rained the entire day.  My day started by going for breakfast with my dad and uncle who came in from out of town.  After breakfast, I had to take by grandmother to the hairdresser.  After that, I went home and relaxed.  That afternoon, I watched the first 2 episodes of Mad Men and just reflected on my life.  At 5 pm, it was time to get ready.  I put on my tux, jumped in my car, popped in Exile on Main Street by the Rolling Stones, and headed to the hall to get hitched.

Our Wedding

We were married in an unpretentious hall in Olyphant, Pa.  For wedding gifts, both my parents and my wife’s parents gave us each $5,000 to use towards the cost of the wedding.  We managed to keep the cost of the wedding close to $10,000.  My future sister-in-law paid to have the string section from Marywood University’s Music Department play for one hour while guests were arriving.

When we were planning our wedding, my dad gave us a solid tip.  He said that people will be coming after work on a Friday night, so be sure to have plenty of food and alcohol ready for them as they arrive.  We followed his advice and our guests were pleased.

Our wedding went off without any hiccups.  We said our vows, ate, danced, and had a great night.  It was the beginning of a new life.

Our House

After our wedding, I moved in to the house my wife owned.  My wife had purchased this house from a relative a few years after she finished college.  The good news was that she almost had the house paid for.  The bad news was that it needed to be remodeled.  Over the past 10 years, here is what we accomplished:

Doors: $2,000

Garage door: $1,200

Shed: $1,400

Windows: $3,500

Bathroom remodeled: $6000

Kitchen remodeled: $8,000

Deck: $9,000

Roof: $8,000

Addition: $30,000

Lawn & landscaping: $5,000

Awning: $2000

Generator: $3000 (following Super Storm Sandy in 2012)

All the projects other than the addition was paid for in cash.  A home equity loan was taken to pay for the addition.

Salary & Savings

The first year we were married our combined income was just over $80K.  Since then, it has doubled.  Every year we have maxed out our Roth IRA accounts.  We also fund our 401K/403B accounts.  We started by contributing 10% of our salary to the 401K/403B accounts and have increased our contributions to the maximum amount allowed.  We also save money in a taxable account.  Our savings rate has increased from 40% to almost 55%.

Education

My wife is a public-school teacher in Pennsylvania.  To get to the top of the pay scale, she had to complete 60 credits beyond a Master’s Degree. When we were first married, my wife had her Master’s Degree.  For the first 4 years of our marriage, she took classes and finished the required 60 credits.  She did so without incurring any student loan debt.

When we were married for 5 years, I switched careers from Marketing to HR.  My new employer offered tuition reimbursement as a benefit.  It was my goal to go to graduate school.  I took advantage of that benefit and went back to school to earn a Master’s in Organizational Management.  The degree cost me about $2,000 and my employer paid for the rest.

Volunteering

Prior to getting married, my wife did a great deal of volunteering.  She did mission work in China where she volunteered to teach English to children in orphanages.  After we were married, she has shifted her efforts to volunteer more at her church.  She has inspired me to be more community focused.  I have become active in helping teach career and interview skills to young people who are developmentally delayed at The Arc of Luzerne County.  We also volunteer together and have taken on a commitment to pick up roadside litter as part of an Adopt-A-Highway project.

 

(Actual Photo of us wearing matching shirts)

Travel

It has not been all work since we have been married.  We have gone on many nice trips.  Here are some of the places we have visited:

San Francisco, Ca (honeymoon)

Tampa, FL

Las Vegas, NV

Miami, FL

Key West, FL

Puerto Vallarta, Mexico

Bermuda

Charleston, SC

Burlington, VT

Ocean City, MD

Washington D.C.

OBX, NC

Asheville, NC

Virginia Beach, VA

Quebec City, Canada

London, England

Paris, France

Our Relationship

My wife is my best friend.  She is also the kindest person who I have ever met.  Our relationship is based on trust, honesty, respect, and communication.  We are not perfect, but we try to be good to each other and to be considerate.  I am not going to lie, it has been easy.  I would not change one thing about her and would marry her again.

Conclusion

Looking back, it has been a great 10 years since we have gotten married.  Moving forward, we are planning on doing more of what has gotten us to this point.  Our goal is to retire in about 11 years, so we need to continue to work hard, save, and invest.  Life is short, so we are also going to continue to travel and enjoy every day we have together.

Financial Independence: A Universal Goal

While reaching early retirement is my goal, it might not be suitable for everyone.  On the other hand, the goal of reaching financial independence should be the focus of everyone during their working years.  Even though most careers seem to drag on forever, the amount of time that we have available to work and save money is truly finite.  Everyone should have the goal of saving enough money to cover at least 25 years of living expenses.  It does not matter if you enjoy your career or not.  This rule applies to everyone.  The sooner you start working towards reaching financial independence, the better off you will be.

Reasons to Achieve Financial Independence

Job Loss

Today, the unemployment rate in the U.S. is around 4.5%.  Most employers are now hiring.  Many jobs are even going unfilled.  Unfortunately, this can change in a flash.  Recessions occur as part of the business-cycle.  When business slows down, companies need to reduce expenses to remain profitable.  One of the easiest ways to reduce expenses is to reduce labor costs.  When this transition occurs, hard-to-fill jobs become hard-to-find jobs.

Losing a job is one of the most stressful situations that a person or a family might face.  By being financially independent, the stress can be removed or drastically reduced.  If you have many years of living expenses stashed away in savings, a job loss can be viewed as an opportunity to take an extended vacation from work, start a business, or explore working in a different line of work.  Financial independence affords options.

Defined Benefits

Since the start of the new century, employers who offer defined benefit plans have been on the decline.  Gone are the days when people work for a company for 35 years and receive $40,000 per year for the rest of their life after they retire.  Employers do not want to have to pay the costs or take on the risk of being liable for underfunded pension promises.  Defined benefit plans are even on the decline in government jobs.

This now puts the responsibility of paying for retirement on the employees in the form of a defined contribution benefit (401K).  The individual is now burdened with the responsibility of saving enough money for retirement.  Many people lack the sophistication to correctly determine how much they need to save and do not have the ability to manage this type of investment account.

If managed correctly, defined contribution accounts are great tools for saving money that can contribute to a person’s financial independence.  The money that is invested grows in a tax deferred account.  Most defined contribution accounts now offer low-cost index funds and target-date retirement funds.  In some cases, employers also match a percentage of their employee’s contributions.

Everyone should start by contributing 15% of their salary to their 401K.  After that, work on increasing contributions by 1% per year.  Increases the contributions every year until you are contributing the maximum amount allowed by the IRS.

Social Security

Social Security is going to run out of money by 2034 unless the government makes some major changes.  That does not mean that Social Security is going to go away.  At that point, Social Security will be funded by payroll taxes.  Based on the current projections, Social Security will be able to pay $0.75 for every $1.

By reaching financial independence, a person does not have to rely solely on Social Security to fund their retirement.  Even if Social Security was fully funded, it does not provide enough in benefits for most people to enjoy a high quality of life.  To ensure a high quality of life in the future, switch your focus from relying on Social Security to cover your future expenses to working towards becoming financially independent.  By doing this, you will be able to view Social Security as a nice supplemental income stream.

Health

Too many people think that, they can work forever.  You might be healthy today, but that can and will most likely change with age.  Yes, we can eat right, exercise, and keep up with doctor visits.  In some cases, we can take measures to improve our health.  The gross reality of the situation is that most people cannot keep up the physical and mental pace of a demanding career once they reach a certain age.

By being financially independent, a person has the option of being able to retire on their terms and to enjoy life while they are still young and healthy.  Life is not too much fun without money.  Life is less fun when you are in poor health.  Once your reach financial independence, you will not have to stress about being forced to work because you do not have the resources to sustain your lifestyle without the income from a job.

Family

Not only do we owe it to our self to reach financial independence, but we also owe it to our family.  We only have one shot at life.  By reaching financial independence, we can do so much for our loved ones.

By being financially independent, a parent or grandparent can better provide what their children or grandchildren need to be successful in life.  Financial independence provides security for a spouse and can reduce the  financial stress in the relationship.  Also, by being financially independent, you can be present in the lives of those you live with, extended family, and friends.

Conclusion

When you think of financial independence, do not only think of it in terms of being able to retire early or live a luxurious lifestyle.  Look at it as necessity.  Life happens and we do not know what is around the corner.  By being financially independent, you take more control over your life.  People who are financially independent have options that others who lack resources do not have.

Some say that control is an illusion.  On some levels, it is.  For example, we do not have control from one breath to the next.  However, losing a job and not having money is not an illusion.  By becoming Financial independent, you can take control where it is possible.  You are also able to enjoy a freedom that is available to almost everyone, yet experienced by so few.

I Bought a Lemon

 

The first time I took on debt was the spring when I graduated from high school.  When I was a senior in high school, I was not 100% sure what I wanted to do with my life.  I knew that I would ultimately attend college, but I was not mature enough yet at the age of 18.

After talking about it with my parents, we decided that I was going to work for a year or two before I went to school.  They were not thrilled with the plan, but also did not want me to just go to college without a solid direction.  Looking back, I still think that was a good idea.

Since I was going to get a job, I needed a means of transportation.  I grew up in a part of Pennsylvania were public transportation was limited.  To get to work, I needed a car.

It was 1995, so all the online car buying resources were not available.  At that point, there was Consumer Reports and Edmunds.  As you will find out, I did not read those magazines.

I decided that I wanted a Jeep Wrangler.  I started shopping by looking in the classified ads in the newspaper.  After looking for about one week, I spotted a 1991 Jeep Wrangler with a hard top.  My dad and I took a ride down to this local used car lot to test drive it.

The Jeep was nice, but when we were at the lot, a different car caught my eye.  The other car was a 1986 Audi 5000 CS Turbo.  The salesman called it a 4-dood Porsche.  We test drove the car and we really liked it.  It was a solid driving car.

At the time, I had zero credit.  My dad agreed to co-sign for the loan.  He had one condition, he said if I missed a payment, he would sell the car.  I agreed to his terms and bought the car.

The car had less than 60K miles and only cost $6,500.  The loan payments were around $165 per month.  Because that it was a turbo, the insurance was higher than the car payment.

 

I had the car for about 2 months before the trouble began.  There were many issues, but the major issue was that if I was not driving with my foot on the throttle it would stall and not start back up.  When I was at a red light, I had to slip the car into neutral, put my left foot on the brake, and keep my right foot on the gas pedal.  Yes, very dangerous.

I took the car to a few different local mechanics and they did not know how to fix it.  I took it to a mechanic that specialized in European auto repairs.  He was not able to pin point the issue.

After I owned the car for about 4 months, I had to sell it.  My Mother was driving it on a major interstate highway when it stalled and would not start back up.  She was lucky to not have been injured or even killed.  The state police came and they called a flatbed to tow it away.  The car was simply not safe and had to be sold.

I took it to a dealer to find out what it was worth on a trade-in.  The dealer offered me $2,500.  I owed over $6000.  I did not want to lose $3,500.  At that time, $3,500 was a fortune because I was broke.

On my way home from the dealer, the car stalled at a major intersection.  I tried to start it for 15 minutes, but it would not restart.  This time the state police were not needed, but a flatbed was.

The car had to go.  I spoke to the owner of the car lot who offered me $2,500.  We worked out a trade for a 1986 Honda Accord with a bent frame and 115,000 miles.  The salesman told me to be careful with the car because it had a bent frame that causes it to drift to the right.

This whole situation truly had me upset.  I was not upset about losing the Audi.  What had me worried was the amount of Debt that I now had.  Plus, I felt that I had very little to show for it.

For the next four years, I had to make monthly payments on a $6,500 loan, but drive a $2,500 car.  This experience left a bad taste in my mouth when it came to debt.  I never missed a payment and paid the loan off.  I told myself that I would never get another car loan again.

The Honda lasted about 8 years.  My next few cars were hand-me-downs with well over 100K miles on them.  I received one from my parents and one from my wife.

I did not buy another car until I was 35 years old.  This time I did my due diligence and did some research before making the purchase.  That car was certified used Subaru with a 100K mile warranty.  I also paid cash.

Have you ever had a negative experience with debt?  If you have, please share your experience and what you learned from it.

Meeting the Bogleheads

In February, I attended my first Bogleheads chapter meeting.  It was a long drive.  I drove over 100 miles to the Philadelphia meeting in King of Prussia, Pa.  I have been a follower of the Bogleheads.org forum for many years and have spent countless hours reading the Bogleheads.org forum.

The Bogleheads take their name from John C. Bogle who founded Vanguard in 1975.  He created the Vanguard 500 Index Fund (VFINX).  The Vanguard 500 Index fund (VFINX) was the first index fund available to individual investors that tracks the S&P 500.  John C Bogle has also made a career of being a champion for small investors.  His approach to investing is to build a portfolio of low-cost index funds that are tax efficient and to stay the course during all market conditions.

The Bogleheads are a group of people who follow the investment teachings of John C. Bogle.  They have a forum Bogleheads.org.  They also have written The Bogleheads Guide to Investing and the Bogleheads guide to Retirement Planning.  The Bogleheads are an altruistic group.  They help others learn about investing at no cost and have donated the proceeds from their books to charity.  A person can post a question about investing, education, careers, consumer goods, as well as other topics related to personal finance on the forum.  Most questions receive many answers by highly knowledgeable and experienced investors.

The Bogleheads’ Guide to Investing

The Bogleheads’ Guide To Retirement Planning

I did not know what to expect since it was my first meeting.  Everyone was friendly and welcoming.  They were happy to see everyone who was in attendance.  Even though I did not know anyone, it was like a meeting with old friends.

There were about 30 people who attended the meeting.  They said that it was one of the larger chapter meetings.  Some people were long time members.  Others were first timers, such as myself.  There were people in attendance from Philadelphia, Maryland, New Jersey, Washington D.C., and the Poconos.

It was nice to put a face to some of the avatars that are regular contributors on the forum.  It was a pleasure to meet “Lady Geek”.  If you follow the forum, you know her as the moderator who regularly monitors the posts.  She makes sure that the rules are followed.  If someone strays from following the rules, the post will be removed or the thread will be locked.  The Bogleheads forum is as close as it comes to being a perfect online community.  That is due to the hard work that the moderators put in to keeping it positive and educational.  No politics, religion, trolling, or solicitation is allowed.

The topics that were discussed over the course of two hours were:

  • Retiree Portfolio Model, a highly informative lecture on Roth conversions (think MBA level).
  • Social Security tax impact calculator, how a Roth Conversion can impact your Social Security taxes (think Ph.D. Level).
  • Asset allocation, Lady Geek gave a great lecture on asset allocation based on risk tolerance (think undergrad level for newcomers).

It was truly an intense 2-hour lecture.  It was almost information overload.  I left the meeting feeling stimulated and exhausted.  I cannot wait to attend the next meeting in May to listen to the lectures on tax loss harvesting.

The Bogleheads have chapter meetings in most major U.S. cities.  They are free to attend.  I highly recommend attending if you are into reaching FI and FIRE.  If you are interested, there is a local chapter section on the forum to find a meeting near you.  Also, if you are interested in the calculator and more detailed notes from the February 2017 meeting, they can be found under the Philadelphia chapter meeting section on the Forum.

How I learned about money

I learned about money from my Grandmother.  I was a precocious kid.  As an only child, I spent a great amount of time with adults.  The adults in my life had the tendency to try to have dialog with me as if I too were an adult.  Friends from school would come over to my house to play quite often, but I remember spending a great amount of time with my Grandmother.

My Grandmother owned her own small business.  She was a seamstress.  She worked for a few different bridal shops.  She also worked for a men’s clothing store.  Most days, she would pick me up after school and take me to her shop.  She would watch me until my Mother would pick me up on her way home from work.

It did not take me long to catch on to the theory of commerce.  Her customers would drop off cloths to be altered.  She would make the alterations with her sewing machine.  The customers would pick up their cloths and pay her.  When I earned good grades, she would take me to KB Toys and buy me Star Wars action figures.  Even though I was only 5 or 6, I understood this process.

There were also times when I would ask her to buy me a toy and she would say that she could not afford it.  She would explain that business was slow and she did not earn much money that week.  She said that she only had money for food, gas for her car, and other needs.  She taught me at a young age that if you want money, you must work to earn it.

That was a complex theory to comprehend at such a young age.  I was only in first grade.  I do not have a psychology degree.   I can, however, see that my frugal ways and entrepreneurial spirit were shaped by her teaching me how business worked.

The second lesson that she taught me was equally as profound.  She and I would sit together in her shop.  I would do my school work and she would be sewing.  I would spend about one hour per day with her.  We would have conversations.  She would ask what I learned at school that day?  She would tell me about her work and other stories.  She would talk about her life when she was growing up, her church, and money.

Money was her favorite topic.  She once told me that she invested in CDs that had paid out an interest rate of 13%.  She would double her money in 6 years.  She was so excited.  I am now referring to the early 1980’s when inflation and interest rates were sky high.  She explained that she would let the bank borrow $1000 from her and in 6 years they would give her $2000 back.  I found that fascinating.  Now remember, I did not understand compound interest.  I was not introduced to multiplication yet.

This first blog post is a tribute to my Grandmother.  Looking back, she truly shaped my view of money.  If you want money, you must work for it.  Also, if you have money, you should invest it.

In case you might be interested, my Grandmother is still alive.  My parents take care of her now.  She is 94 and ran her business until she was in her 80s.  She had to finally give it up because her body was breaking down.  Sewing was her passion.  At the end of her career, she was just doing alternations for her neighbors.  I don’t think she even charged them.  She just liked them coming over to talk with her.

Occasionally, my Grandmother will call my wife and ask her to come over for a visit.  She wants to teach her how to use her sewing machine and pass on her legacy.  Maybe she will also share some investing tips with her too.  We have never consistently earned 13% returns on our portfolio.

How did you learn about money?

Sirius XM: Getting Past No

Yesterday, when I was checking the mail to see what type of junk the postman delivered, I noticed a letter from Sirius XM Radio.  When I opened the letter, it was for my subscription renewal.  I have the Sirius XM All Access Plan.  The total that I owed was $273.  That was for the base price of $239 and $34 for a music royalty fee.

Wait, I know what you are thinking.  This guy has a blog about personal finance and financial Independence (FI), but he pays to listen to the radio in his car.  Many people are trying to find ways to reduce expenses like cutting the cable cord at home to eliminate a monthly bill?  Paying to listen to the radio in your car is just a waste of money when you can listen to terrestrial radio for free.

Yes, those are all valid points.  Before you judge me, please let me explain my situation.  My job requires that I travel in my car often.  I spend many hours in my car each week.  My journeys take me to Northern New Jersey, rural Pennsylvania, and the Southern Tier of New York.  Except for New Jersey, the traffic is not bad, but the driving is boring and the radio channels are terrible.  Having Sirius XM makes my traveling much more enjoyable.

Even though having Sirius XM adds pleasure to my weekly trips, I was not willing to pay $273 for the yearly subscription.  I knew that I did not spend that much the previous year, so I went and looked up my credit card statement from last summer.  It was only $136 after taxes and fees.

As of late, I have been reading many articles on different finance blogs about trying to reduce your bills.  Many authors simply suggest calling and asking for a price reduction.  I decided to give that a try because I do not want to have to shell out $273 to listen to Sirius XM.

When I called, I spoke with a Customer Service Representative named Daniel.  I told Daniel that I enjoy listening to Sirius XM.  The new price, however, was too expensive.  I asked if he could lower it.

Daniel informed me that Sirius XM had a new price structure.  He first offered me the price that I paid last year, but said that it did not come with the two Howard Stern channels or the NFL channel.  That offer was unacceptable because I enjoy those channels.

His second offer was a price of $199 for my current plan.  I told him that I like the programing that Sirius XM offers.  It makes my drive to work more pleasurable.  Never the less, it was just too expensive.

I asked him if I could have the same total price of $136 that I paid last year.  Sirius-XM must get many calls from customers who want to lower their bill.  They also seem to invest in some negotiation training.  Daniel asked what I would do if I could not have that price.  His response reminded me of the books Getting Past No and Getting to Yes by William Ury.  He was searching for my (BANTA) or best alternative to a negotiated agreement.  That is a theory made popular William Ury created as part of the Harvard Negotiation Project.

Getting Past NO, William Ury

Getting To Yes, William Ury

Even though I was impressed with his negotiation skills, I told him that I would not be able to afford the new price.  It was too expensive.  If I did not receive the price that I paid last year, I would have to cancel my subscription.

He was hesitant at first and said that my new price was almost half of what the new price was.  After he thought about it for a few seconds, he agreed to the total price of $136 after taxes and fees.  He did not want to lose me as a customer.

If this approach works with Sirius XM, what other bills can I call about and try to reduce?  I am now motivated to find out.  It was worth the little bit of effort to make the phone call.  The worst they can say is that they cannot reduce the bill.

The customer truly has the power during these negotiations.  The customer has the power to say no.  The customer has the freedom to simply walk away and take their business elsewhere.

Do you have any experiences of calling a company to have a bill reduced?

Peer-to-Peer Lending (P2P)

INTRODUCTION

You cannot manage a household or do much of anything in this world without the input of money. There are so many people who lack the financial means to live and enjoy a high-quality life.  Money is what stands in the way of them acquiring their needs or wants. When there is a problem, various solutions will be thrown up. Welcome to the world of Peer-to-Peer Lending (P2P).

DEFINITION

Peer-to-peer lending is legal and recognized by the government. The use of official financial institutions as avenues to source for funds can be tricky, intricate, and cumbersome to some people who do not meet the required credit standards. Poor credit is the barrier between the borrower and the needed loan.  Credit Cards are an option for people who have poor credit, but they come with restrictive credit limits and high interest rates.   Most people are not comfortable with borrowing from sources other than insured financial institutions, yet they need access to financial capital. This scenario created the rise to the advent of Peer-to-Peer Lending (P2P).

Clearly defined therefore, this means of getting money is a method of debt financing whereby individuals can either borrow or lend money depending on the situation without recourse to any financial institution acting as an intermediary. The middleman is technically removed from the lending process. In some circles, it is known as social lending.

WHO ARE THE BENEFICIARIES

The borrowers and lenders are individuals. This mode of transaction is conducted online. The fact again must be laid bare here that most of the people that conduct their business through this method are those that have been rejected by established financial institutions. The reason for this is due to the fact of their inability to repay those loans.  Most financial institutions will not lend money out in such risky scenarios.

Despite all the odds however, Peer-to-Peer Lending (P2P) has come to stay as a means of getting needed cash to people who are desperate. There are instances of people who have taken advantage of this medium of borrowing.  The emergence of new intermediaries in this mode of borrowing money is also time saving compared to traditional lending sources.

CHARACTERISTICS OF PEER-TO-PEER LENDING (P2P)

  • The transactions take place online.
  • There is room for intermediation by a peer-peer-lending company.
  • If the P2P offers total facility, the lender will more often make a choice between borrowers; they will choose the ones they will lend money.
  • Some (though not all) of the P2P platforms provide transfer facilities or what is referred to as free pricing choices. It applies to debt collection as well as to profits.
  • In this system of monetary transaction, there is no need for a prior knowledge/common bond between the lender and the borrower.
  • In most instances, it is conducted for profit.
  • The loans under this category can be secured or unsecured.

WHY PEER-TO-PEER INTERMEDIARIES

The initial concept is to do away with being forced to borrow from approved financial institutions:

  • A means of getting new lenders and borrowers.
  • The development of credit models meant for loan approvals and for pricing.
  • There is need for some verification before each deal is sealed. Issues such as borrower identity; employment; bank account and income can be verified through the intermediaries.
  • It will enable the performance of a borrower credit check with the sole aim of separating and filtering out dubious and unqualified borrowers.
  • There is the need to process the financial transactions, borrowers will pay and same will be returned to those that lent out the money in the first instance. The processes need effective co-ordination which can be guaranteed by the intermediaries.
  • There is the aspect of tiding up the legal aspects and the reporting of such which are performed by the intermediaries.

THE LEGAL ANGLE 

In most countries of the world, the art of soliciting investments from the public is considered illegal. To get legal cover; the language adopted is crowd sourcing. This is an arrangement whereby people are made to contribute money in exchange for potential profits based on mutual efforts of those in the group; it is known as securities.

THE ADVANTAGES

  • It is two-way traffic; a sort of win/win situation for both the borrower and the lender. The borrowers will get access to funding otherwise not available from traditional bank. On the part of the lender; they are guaranteed higher returns more than they would obtain elsewhere.
  • It assists people and is beneficial to the community.
  • It supports the efforts of individuals to break free from the burden of debt.
  • It discourages those that are involved in activities deemed immoral-the ones that are detrimental to the society.

THE DISADVANTAGES

  • Interest rates may be higher in other to cushion the effects of likely loss occasioned by defaulters.
  • Measures to enforce repayment of the loans through the government are not in place.
  • The default on repayment of the loans is very high.

PEER-TO-PEER LENDING (P2P) PLATFORMS

If you are interested in learning more about peer to Peer lending (P2P) or participating in this practice, please see the below list of top rated (P2P) platforms:

CONCLUSION

There is the risk factor in any business or investment endeavor. But considering all factors, Peer-to-Peer lending (P2P) has come to stay and it is now a strong factor in the economies of most countries-the developed and underdeveloped alike.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

Traveling with debt with a smile: 5 Rules you must follow

Can you travel when you have credit card debts?

Some individuals will say this is a bad financial move. You should think about saving money instead of planning a vacation. You need to think about the ways to pay off debt. But is it true? Let’s find out.

I don’t feel that it’s irresponsible to travel when you have credit card debts. You can travel and pay off debt simultaneously. You just need to be cautious and financially responsible. Plus it’s not practically possible to deprive yourself of fun throughout the loan repayment term. Suppose, you have student loan debt. Usually, the loan repayment terms of student loan debt stretch for a long time. So does this mean that you won’t travel for 10-20 years? It’s totally unrealistic and impossible. You can control yourself for a short term-period. But it’s impossible to stop yourself from having fun all the time.

Smart budgets can help you have fun even with debt. You can dine out, shop and travel. Basically, you can do a lot of things. All you need to do is plan carefully and follow your budget.

Rules you need to follow to travel with debt 

Here are a few rules you need to follow to travel with debt. 

  1. Don’t incur fresh debts: Have a look at your savings account before planning your vacation. Do you have enough money in your savings account? If ‘no’, then you can postpone your trip. Save enough money to enjoy a trip comfortably.

It isn’t that you have to pay cash for every transaction. Just make sure you have sufficient cash in your savings account. If you’re planning to use a credit card for covering expenses, then pay off the outstanding balance as soon as possible.

  1. Create 2 separate accounts: Set up a separate savings account and save money there to pay for your trip. You can have 2 separate savings accounts – (i) saving travel money (ii) saving debt repayment money. This will help you track your savings. You can figure out how much you have saved for traveling and how much you saved for paying off your debts. This will help you plan your vacation comfortably.
  1. Make your monthly payments: Have you enrolled in a debt relief program to pay back your creditors? If so, then make sure you have money to make the required monthly payments. If you pay $250 every month, then keep doing that even when you’re traveling. If you can’t pay this money, then don’t have a vacation right now.

Don’t travel if you don’t have a debt repayment plan. Calculate how much you owe on your debts and then formulate a plan to pay off them. Ask yourself how long it will take to pay back your creditors and the amount you need to pay every month. This is your debt payoff plan. Use it wisely.

  • Do extensive research: Before traveling, do extensive research on your desired destination. Calculate the average cost of food and accommodation. Know about the fun activities you can do in that place. Ask your friends about the the local foods you can eat and the free activities you can do. Just post a message on Facebook. You’ll get lots of suggestions.

 Postpone your debt repayments: If it is possible, then postpone your debt repayments without being charged an additional interest. You can transfer your balance to another credit card with 0% interest rate. Some credit cards charge 0% interest rate for 12-18 months. You can transfer the balance to one such card. Just remember you have to pay off the balance within the introductory period. If you can’t, then be ready to pay higher interest rate.

Conclusion 

You can take a job abroad to pay off your debts and travel simultaneously. Obviously, this option is not a suitable one if you’re thinking about making a short trip. You’ll be out of station for several months. Plus, you have to get a job at your destination before leaving home. There are other factors you need to consider too. For instance, you have to think about the relocation expenses and the cost of living. If the cost of living is too high and your expected monthly income is less, you’ll be in trouble. It’ll be difficult for you to live there. So make sure you get a job that will help to cover your monthly expenses and debt repayments. Otherwise, it’ll be a wrong financial move to relocate.

The best option is to think about a few ways to make money when traveling. First, you can ask your employer to arrange a free accommodation for you. This will help you save a lot of money. You can.

This post is contributed by Patricia Sanders from wiki.debtcc.com.

Locus of Control

“A man who conquers himself is greater than one who conquers a thousand men in battle”.

– Buddha

As of late, I have come across the topic of locus of control a couple times.  During a strategic planning meeting at work, the Vice President of HR mentioned that we need leaders who have an internal locus of control as part of the committee that will be implementing our new strategic plan for our health care centers to comply with The Triple Aim.  I have also recently come across the topic at a leadership training seminar at Binghamton University.

So, what is Locus of Control and how is it relevant to your personal finances?

Locus of Control is a concept by Julian Rotter that became popular in the 1960’s.  It is based on the degree of how much power people have over situations in their lives.  People who have an internal locus of control think that they can influence events in their lives.  People who have an external locus of control blame others or outside forces for everything that happens to them.

People who have an internal locus of control tend to be self-aware.  They are empathic towards others.  They are good at self-regulating their emotions, thoughts, and perceptions.  People who have an internal locus of control normally are good at delaying gratification.

Those who have an external locus of control are more likely to be the bellwether.  They are a good indicator of trends or predictions of a group.  They value feedback, believe in fairness, and focus on the actions of others.

Locus of Control can play a role in how successful you are in the long-term.  If you have an internal locus of control you are more likely to believe that it is up to you to take charge of your life and take the required actions to succeed.  For those who fall into the external locus of control group, it does not mean that you will not be successful, it just means that you put more stock into luck vs will.

Saving Money

A person with an internal locus of control is very likely to be committed to saving money.  They feel the need to be self-reliant.  They want to make sure that they have enough resources to take care of any situation that might occur.

A person who has an external locus of control is less likely to worry about saving money.  They are likely to feel that the system is rigged and saving is impossible because everything is so expensive nowadays.  Even if they tried to save more, they believe that something would happen and they would have to spend the money anyway.

Debt

Those who have an internal locus of control are less likely to have excessive debt.  That is because they can display more control over their financial situations.  It is ultimately their responsibility to manage their financial situation and do not want to error and fall behind to a creditor.

For those who have an external locus of control, debt is an easy solution to a financial situation.  Since they do not have enough saved or feel that they are not paid enough, they can justify the debt.  They will fall into the mindset of “it will get paid” or “hopefully, I will come across a windfall to pay it off”.

Investing

People who have an internal locus of control are more likely to be investors.  Since they feel like they have the mastery over their life, they are going to invest their money to improve their financial situation.  They are willing to invest in a business, education, or stocks to put themselves in a better financial situation.

People who fall into the external locus of control group do not tend to be investors.  They are less likely to invest is stocks because they are too risky.  If they do invest and lose money, they feel that it was fate and they should not be putting their money at risk in the first place.

Careers

Employees who have an internal locus of control start their career by being prepared for the job interview.  They assume responsibility for failures and look for ways to improve their performance.  They credit their success on effort and preparation.

Employees who have an external locus of control feel that jobs are awarded to people based on politics or nepotism.  When something goes wrong, they do not assume responsibility, but rather blame others.  If there is a positive outcome, it is viewed as just being lucky.

Do you have a high Internal or External Locus of Control? 

Are you curious to see if you have a strong internal or external locus of control?  Please see this article on locus of control at mindtool.com.  It has a 22-answer test to determine if you have an internal or external locus of control.

What can be done about the Locus of Control

In my K.I.S.S. approach to Financial Independence, I have stated that this blog is about being positive and honest with yourself.

With that being written, what can you do if you want to shift your external locus of control more towards the center?

You can start by being more mindful.  Start by being more aware of how you are feeling and responding to situations.  For example, if someone at work gets a promotion and you feel the promotion was awarded due to favoritism, stop and identify that thought as being linked to your external locus of control.  Change the narrative in your mind to “they worked hard for the promotion and if I work hard, positive events will come to pass for me too”.

Take a mental inventory of each situation you face.  How are you responding to situations?  The solution is based on adjusting how you think about external situations.

Conclusion

If you find that you have a high external locus of control, stop being a victim to this state of mind.  Take charge of your life and destiny by changing how you are mentally framing situations that occur in your life.  If you do, great things are sure to happen.

Changing your locus of control is not easy.  It is, however, possible if you are willing to be vigilant.  Take a personal inventory every day and follow it up with positive action.