Managing Credit Cards

As you may know, the average American has consumer debt. Quite a bit actually. You see, the American education is great in a lot of ways except for one. No actually taught anybody how to handle their finances. In an age were high school graduates go into college with credit card companies knocking on their doors, the uneducated easily makes unwise decisions and winds up graduating from college with student loans and consumer debt. I am one of them.

I have since read a lot about personal finance and have taken steps to pay off my debt. It helped that I was interested in passive income ideas and that I majored in Economics (taking classes in Finance and Accounting helped a lot). The concepts of cash flow and credit management eventually helped me to implement the system I have now.

So what do I do with my credit cards now? I know some people cut up all but one. Some people leave their credit cards at home and use cash or debit cards only. Some even freeze all but one card in a zip lock bag so in order to use it, you have to wait for it to defrost, which can give you time to think over any impulse purchases. I think it is a waste not to use credit cards.

With a lot of credit cards offering cash back, miles, or rewards, one would be foolish to not take advantage of them. What you have to do, however, is treat it like a debit card. You have to remember any credit purchases must be paid back, and if you can't pay it back within the month, then you will just be giving free money to the credit card company. So what I do is, I keep one or two cards in my wallet with my debit cards. I revolve them every few months with the ones I keep at home to keep them active and reporting to the credit agencies (to build credit). The biggest thing is that when I make a purchase with a card, I remember to create a fake payment entry in my checking account to cover that amount. Next time I spend, I add to the amount of that entry. This gives me a true value of my checking account and prevents me from over spending. When it comes time to pay the bill, I send the payment over, remove the fake payment from my checking account, and presto! my balance is the same as they cancel each other out. There is no way I can't pay the bill, because I always make sure to cover the purchase with the fake payments.

What happens when you don't have the money in your account to cover for a purchase? The better question is why are you buying something you don't have the money for? Is it really necessary? If it's a repair for a car that can't wait, then you dip into your rainy day savings...that's if you have one. If not, then you will unfortunately have to let the balance sit while you pay it off. We'll talk more next time about how important it is to have $300-500 saved aside for a rainy day.

Prosper referral - Free money!

I was checking my account at propser.com when I noticed that they are offering a referral program till June 30, 2008. Any borrower that I refer that gets a loan funded within 90 days gets $50. Any lender that I refer that funds a loan within 90 days gets $25 (I'll get $25 too in this case). So if you are in a situation where either of these scenario works for you, this is pretty much free money in your pocket. I've added a little referral link/ad on the side if anyone's interested. So check it out! It ends June 30, 2008.

"Found" money, Proper update

So I "found" my dental reimbursement check 8 months after it was cut. It's not a big check or anything, but I didn't know about it, and I've lived without it for 8 months. I called my dental insurance company to have it reissued. I'll probably skim $50 off the top and send it to prosper and put the rest towards my consumer debt. It's always nice to "find" money!

Speaking of prosper, my third loan that was in verification status is finally completed. I now have three loans that I put $50 in originally. The average rate of all my loans now is 18.81%. As I've said before, I'm expecting this to give me $0.50 increase in my monthly passive income cash flow. Why only $0.50? I don't put into account the money I am getting back as that's my principal that I put in. So I'm only approximating the interest. As for the money that I have returned in my account, it's sitting at just under $22.00. So once that hits $50, the minimum to bid, I will bid on another loan, effectively creating a compound interest scenario for myself. I am keeping track of the money I am putting in, so I can see what type of actual return I am getting after fees and service charges.

Nothing else new here.

New blog

So I've started another blog; this one is more of a personal blog, a place for me to throw down my thoughts. Another reason is for me to have another site where I can setup my AdSense ads. I checked my stats this morning and I've had 47 page impressions since I started this blog. Granted, that my mom might have been reading it, but I doubt it since she can't read English. In any case, I wanted to see how this would affect the numbers. I also just wanted a place for me to collect my thoughts.

Nothing new happening in the passive income front. My new loan at prosper is still waiting for the verification process. I don't have any plans for the next few days in terms of increasing anything. I am trying to figure out what to do with my economic stimulus payment. I have so many options of where to put it. I can put it towards debt and treat the decrease of debt as a return at the finance charge rate (less money out). I can throw it into my ING and increase my porfolio income cashflow, but I can also do that with prosper and spend some time finding some more great loans. Decisions, decisions. All I know is that my finances are setup so that I do have positive cashflow, even if I have to sit with debt for the next year or so (please note that I only count my credit card debt, and not my student loan or car loan). You know what, on second thought, I might just skim a $100 off the stimulus payment and throw that into my portfolio income while the rest goes to my debt. That sounds good.

Prosper update, Saving tips

So I was outbid for the loan I bidded at 22%. Not wanting to lose too much time, I found another suitable loan with a relatively low debt-to-income ratio (DTI) for the credit grade (it was a C) and bidded at 18.75%, which is still higher than my average rate for the other two loans. I found out last night that I won at 19.30%. Now I just have to wait for prosper to verify documents with the borrower and finalize the loan before I start getting monthly payments. This should increase my monthly portfolio income cash flow by $0.50. This puts my total passive income at roughly $10.25/month.

Now, you might wonder how a 26-going-on-27 year old living on his own with a car loan, student loan, and consumer debt finds cash to save. After years of fighting consumer debt from bad decisions in high school and college, I've picked up quite a bit of saving tips.

I use Microsoft Money to track all my finances, and one of the things I do is I create a "payment" to myself. Every pay period (for this job, it's weekly), I increase it by $5.00 and update the date so it stays in my recent activity. Now when I look at my balance it shows I've spent $5 when it's actually still there (I actually now have $500.00 via this method that I keep around for emergencies). I do this for credit card purchases too; as I enter the expense into my credit card account, I increase the "payment" to that card by the appropriate amount. When I actually pay that credit card bill, I either drop the amount by the payment or delete the line all together. This not along makes me realize the money is spent when I swipe my credit card, this ensures the money is in my checking account when the bill comes. Other things I use it for are my car payment (I prorated the monthly amount to a weekly amound and increase the "payment" every week), my kung fu class tuition, and other bills.

I also transfer money to my INGdirect accounts every week. Once it's out of sight, it's out of mind. My checking account doesn't pay me interest, so I try to transfer most of my money out of the account except for money for the week and bills. INGdirect also has a checking account called Electric Orange. I have a couple of credit cards that are paid via that account, so when the statement comes, I transfer the money from my checking to my Electric Orange account. Then I schedule the credit card to draw the funds a couple of days before it's due. This allows me to get some interest on the money while it sits in the Electric Orange account.

I think one of the main ways I also save is that I almost never use my change. I start the day with zero change, and any change I wind up with at the end of the day goes into a jar. When the jar is full I take it to Coinstar to be counted or if I have time, I count it myself. Sometimes I pay my sister $5 to have it counted (it feels better paying family than Coinstar). The money then either goes into my savings or other accounts; recently I've decided I should add that money to either my ING account or my propser account to be loaned out.

So in total, I save $200-$250/month. I contribute 5% of my gross income to a 401k account, but I don't count that money as I won't be seeing that for quite awhile.

Squidoo

Having this blog is forcing me to review all the sites I have joined over the years. One of them being squidoo. It's a site where you create "lens" on anything you like. The lens are automatically populated with relevant ads, and you can place modules linking to ebay and flickr for more information. So you really don't need to add a lot of content; you're really pulling together content and focusing your "lens" on it. You get paid a portion of the ad revenue based on your ranking and page visits. There's also a cool feature where you can actually donate the earnings to charity.

At the time I signed up for the account, I quickly threw two lenses together and left it at that. Well, since I haven't updated them much or promoted them, they were both marked as "works in progress." Anyway, I went into one of them and updated it a bit to give it some freshness. If you like to check it out see here: http://www.squidoo.com/KiAndAikido

Also, while googling, it turns out there are a lot of blogs out there by people who are either trying to create passive income or lower their debt, which is a great thing. Not only do I get to see what others have done, I feel extra motivation that some people are having moderate success.

Google AdSense, Prosper Update

Last night, I applied for a Google AdSense account, thinking it would take awhile for it to approve. Boy, did it turn out to be easy. I was approved later in the night and I have already setup this blog with the ads (as you can see on the right and at the bottom). Let's see how long it takes for something to happen. The beauty of the AdSense program is that I can have one account and use it on all my pages, which at the moment is a total of one. But should I decide to start other blogs or online business, I simply add the scripts for the ads and it'll place relevant items on the page. Now if I can drive some traffic to this blog, then I can see how it all works.

As for prosper.com, my $50 transfer finalized today and I've already bidded on a loan that was at 29.99%. I put in a minimum rate of 22% to make sure (hopefully) that I get this loan. This should increase my average rate of return. Keep in mind I already have $100.00 in the site, and currently those two loans are worth $108 and change (worth of loans plus money paid back). I plan to throw in $50 whenever I can to continuously increase the cashflow there. I don't plan on taking any money out there, so whenever my cash balance from loan repayments reach $50 (the minimum to bid on a loan), I would bid on another loan.

While searching Google to see if this blog is in the search results, I found another blog focused on paying off debt using different methods, including passive income online. As I believe in sharing good stuff, here it is: http://www.debtfreedomguide.com/Seems to be a pretty nice site. Found out about ebay and Amazon affiliate programs too, so I'll do some research in those areas and see how it can fit into my plans.

My short term goal right now is to make $25.00/month on passive and portfolio income combined. Let's see how long that takes.

Here it is.

So, as far back as when I was in high school, I new I needed freedom. I knew that strict scheduling would annoy me. Then when I started working, it confirmed everything. I thought back to my eighth grade reading class and how my teacher, Mr. Glionna told us about buying houses and renting them out. How that we should eventually own multiple investment properties and sell them or transfer ownership as needed. I didn't know it then, but he planted a seed in my head.

In high school, I read up on investment properties and basics of how to be a landlord. I knew that I wanted to own these properties. I loved how it gave me the idea that I could eventually "work" for myself. I went through college and found out more about passive income. I read Robert Kiyosaki's "Rich Dad, Poor Dad" (a book that eventually left me frustrated, but that's another story). One of my professors and eventual martial arts mentor further solidified my desire to own investment property and create other forms of passive income. But like every other American out there, I racked up debt and graduated from college in the red. I grabbed an entry level job and joined the 40-hour a week workforce. My dreams of owning property would have to wait.

Then when I was 23, I took a job for a residential management property. One good thing I did pick out of Kiyosaki's book was that I "should work to learn." And I took the job to gain experience in how to manage rental properties. I figured that when I was financially able to own properties I would have the know-how for it. I was right. I learned a tremendous amount of information and real estate laws during my 2.5 years, the last two as an assistant property manager. I eventually burnt out from the high demands of luxury apartment tenants. While there I learned a bit about asset management (one step above property management). I tried finding jobs relating to asset management, but they passed over me due to my lack of "analyst" experience. And now here I am, an accountant. Working to learn.

As I learned my duties and responsibilities of my new job, the 40-hour work week was beginning to bug me as it has for all my jobs. Compared to my managerial job before, this job required less thought and decision-making. I liked the freedom, but it wasn't enough. I wanted to be free to manage my schedule. I wanted to be free to make my own money. My buried desires of living on passive & portfolio income came back. I re-evaluated my goals and decided I need to dust out my road map and get back on course. And it has led me here.

This is a blog about my attempt to create a decent cash flow from passive and portfolio income (I will refer to both as passive income for convenience). If successful, I would switch to a more enjoyable job and enjoy some freedom. After the accumulation of years of on-and-off research, I understand that this is not an overnight feat. I understand that this may take years to achieve, but if I can even create $1,000/month of passive income, then I know there can be more.

I've been pretty disappointed by the information that's out there for passive income (a lot of scams and pay for info sorts or just people saying they have it and it works, but no details of how they did it), so that's another reason for this blog. Here is where I am at from my previous dabbling in passive income:

Passive income:
epinions.com: I've been pretty inactive now, but you write reviews and get a share of the click traffic. I'm currently at below $1/month. Please see my profile for my reviews: http://www0.epinions.com/user-truparad0x

cafepress.com: I've started an account there but never created enough work to place on the products for sale. It seems like a great place to sell your work on t-shirts, mugs, and stickers

Portfolio income:
sharebuilder.com: An investment site where you can also participate in dollar-cost averaging investing. It was great for me when I was in high school because I didn't have the capital or know-how to invest in the market. I still have it and ING recently bought it out, so "real-time" trades are cheaper now too. I haven't added to it much, and the market is crappy anyway. But even back then I knew to look for stocks that yielded dividends. I think I'm at $1 - $2/quarter.

ingdirect.com: Online banking. I started my savings account there fairly early. I saw rates go as high as 4.75%, but it's lower now due to the economy. Still beats any other brick-and-mortar banks. I'm getting $7.50/month.

prosper.com: Peer-to-peer borrowing and lending. You bid on loans and get a rate on the principal. Or you can be on the other side posting loans to be funded. I'm a lender with $100.00 in to test the waters. The site lists my average rate at 18.48%, but they do charge an origination fee and service fees, so I need to do more calculations to figure out the exact cash flow and rate of return. Based on the current payments I receive and the amount of time that's elapsed, a crude figure for interest earned would be $1/month. I just recently transfered another $50.00 to see if I can bid on another loan. As a note, though, borrowers can default on loans and you may lose the money you put in.

These all total to about $118/year. Nothing to really quit the ol' nine-to-fiver for. But I like to focus a bit more on my passive income and see what I can do. My long-term goal is still to own at least one investment property. I also desire to have a small business (I know, not passive income), but do not know what it would be yet. If anybody has any other ideas that work for them, let me know and I will consider doing it as well.