http://www.moneydiva.com/step-1-to-funding-a-fabulous-retirement/

Experiments in Investing for 2015: Private Lending Pools with Lending Club

I’m committed to trying several new ways to make money investing in 2015. One way, new to me at least, is Lending Club.

LendingClub logo landscape lrgThis is a way to make direct loans to individuals by pooling my money with hundreds of other investors – the industry term is Peer to Peer (p2p) lending. This allows me to diversify my private lending portfolio since I have a very small amount invested with any one loan. By small, I mean $25 – $50.

Lending Club isn’t the only direct private lending vehicle but it is one of the biggest and longest running. In addition to making new loans, they are affiliated with a loan trading service (FOLIOfn) that allows me to cash out of any or all of my loans at any time. Prosper is the other major vendor in the direct, pooled loan market. I may experiment with adding a Prosper account later, when I’ve got Lending Club figured out.

I’ve created a custom portfolio mix that (almost) satisfies my purpose for engaging in this activity – double digit annual returns – while allowing their automated portfolio builder to chose loans that fit my allocation.

My first portfolio looks like this: Screen Shot 2015-02-12 at 2.24.39 PM

But, I’m also creating a portfolio of loans I chose myself.

My first experiment is with loans that the borrower says are for business growth or other capital projects instead of debt consolidation (which constitute a very large portion of Lending Club loans). I’m funding those for borrowers with FICOs in the high 600s and 700s who are willing to pay over 15% for the money. I figure these are economically productive ventures that conventional bankers can’t fund. Still, they’re higher risk so I get the higher returns.

I’m legging in – making small, $50 – $100 transfers into the account each week until I get to my first $1,000 invested. Basically, doing it the slow way allows me to see how their system works and see if I want to make any major adjustments before I get in any deeper.

My first loan funded this week and three others are processing. I’m also waiting on my second fund transfer to process – this seems to take a long time – a request made on Monday isn’t available to use until Friday. I’m thinking maybe I should put a weekly transfer on automatic since I don’t want to have to remember to sign-in and do that every week.

Lending Club can also set you up for investing in notes in an IRA account. I’m not sure if I’ll transfer some of my IRA money or not. On the plus-side, you don’t have to mess with the extra tax reporting a p2p account entails but, if it’s in a standard IRA I’ll pay regular income taxes on the earnings when I withdraw (no offset for writ-offs). If I use some of my Roth IRA money, the earnings will be tax-free and I won’t have to do any extra tax forms. Unfortunately, I’m limited in the amount of new money I can put in IRAs so I’d need to sell my current holdings to get cash to invest in LC.

I did quite a bit of research before starting this program, so, if you’d like to find out more, I recommend these sites:

Thanks first to MrMoneyMustache.com for introducing me to this opportunity. MMM is a 40ish “retired” guy who focuses on living solely off his investment returns. His LC results tracking is at: http://www.mrmoneymustache.com/the-lending-club-experiment/

Peter Renton at LendAcademy.com has several years worth of personal experience documented along with thousands of comments from other lenders (he covers borrowing too). A good place to start (and find links to other useful p2p sites) is his write up on the risks of p2p lending at:

http://www.lendacademy.com/what-are-the-risks-of-peer-to-peer-lending/

I’ll be making some periodic updates in blog posts as I get rolling with p2p lending – if you’ve got any experiences or questions about peer-to-peer lending, please post a comment below!

Live Long and Prosper,

Leah, the MoneyDiva.com  

Measuring What Matters – Your Net Worth

If you want to know if you’re truly financially successful, you must regularly calculate your net worth. It’s not the only number you need to know -

Increasing Net Worth  >> your investment ROI (return on investments) and

  >> passive income as a percentage of your living expenses

       are both important – but Net Worth is in the top three!

 

And, it often has nothing to do with perceived wealth. Most anyone with an above average income can borrow enough to fund a wealthy looking lifestyle. So, instead of looking around your neighborhood, comparing your cars or your backyard amenities (yes, we all use google maps to checkout the neighbor’s lots) look at your Net Worth to see how you’re doing.

Building Real, Lasting Wealth

As we know from reading The Millionaire Next Door (required reading for wealth builders), the kind of wealth that leads to financial freedom isn’t ostentatious or very sexy. Sure, you can drive a nice, USED, car and take the family on vacations, but not on credit.

And you can enjoy those fun things when you know your Net Worth is growing faster than your expenses. Now, thanks to the information age and free internet apps, monitoring your Net Worth, income and expenses is easier than ever before.

But before we log into our online tracking tool, we need to be really clear about what Net Worth is; and it’s really pretty simple:

Net Worth = Assets minus Liabilities

So, when we’re clear about what’s an asset (versus an ongoing expense) and what our liabilities really are, it’s easy. Collecting the data on assets and liabilities is where many people fall short.

An Asset is an Asset?

Here’s where my definitions may vary from conventional financial planners’.

Most will list your primary residence (assuming you’re an owner instead of a renter) as an asset. They subtract the mortgage and add the net to the plus side of your balance sheet. I disagree.

We all have to live somewhere and, unless you can and are willing to convert the net value of your primary residence into cash and downsize or become a renter, that’s not a real asset. In fact, the net value tied up in your primary residence is often an underperforming portion of your portfolio and the property itself carries many necessary, ongoing expenses for maintenance and repairs.

Unless you are positive the net asset value of your primary residence far exceeds the potential liabilities (or it earns you income), I suggest we leave it off our asset list. Of course, that means you can also exclude the mortgage from your liabilities, assuming it is less than the gross value of the property.

That goes for your cars too. Unless you know you can sell it for more than you owe, buy a cheaper car to use, and bank the difference (or you’re an Uber driver), I just don’t bother calling a depreciating asset an entry in my Net Worth calculations. That goes for personal jewelry too (just for fun, check the resale value on a used diamond or gold chain); collections or pretty much anything that can’t earn an  income.

Financial assets are easier – investments in equities and debts traded on public exchanges can be tracked in real time. Bank accounts too. Even other, income producing assets, are reasonably easy to value now, thanks to the internet.

And don’t forget to include the future value of pensions and inheritances that are certain. If it would go into probate (or directly to a beneficiary) when you die, it’s an asset.

Liabilities, Honestly

Being transparent about what’s owed can be difficult for many people – even with themselves. If this is your first attempt at calculating your Net Worth, you may find yourself “forgetting” about certain outstanding debts or expenses you’ve committed to.

Afterall, you may say, that student loan is really an investment in my future earning potential! That loan from my parents carries no interest…

It is possible that your liabilities will initially exceed your assets. I know mine did when I first started tracking. I borrowed money to go to school, I borrowed money for a new car to commute to my first job. Had to have “businesslike” clothes for that job too, which went on my department store credit card.

But I hated paying the interest on those loans and so I directed any earnings in excess of my basic living expenses to paying those loans off ASAP! I drove that car for over 10 years. I created a viable career in retail management and then finance from that student loan and I developed a habit of paying off the credit card balance each month (and, before the internet, keeping every receipt and a running total of its current balance).

So, I’m not in the “All Debt is Bad Debt” camp but you must remain honest with yourself about what you owe and what you expect to gain from your liabilities.

Let the Computers do the Calculations

Once you have the statements or the username and passwords for your loans, bank and brokerage accounts, you can start doing the math. Or, you can use one of the awesome personal financial apps now available, at no cost, online.

I’ve been using the PersonalCapital system over the last year and I really like it. Not only does it give me up-to-date Net Worth and Investment balances, it makes tracking expenses and income painless too. No more adding up various categories of expenses. I can easily see how much I’m spending in dozens of different categories. I particularly like that it makes it easy to see my investment income – over any date range I desire.

I had some reservations about security using the online tracking – I never did open a Mint.com account – but they have proved quite unhackable. Mainly since they don’t have the ability to make transactions, only to download transaction data. Any buying, selling or transferring of funds still takes place at your bank and brokerage sites.

Once you link all your accounts, and make sure the transactions are properly tagged, wah-la: Your Net Worth appears. And, as you develop a history, a graph of it’s ups and downs forms so you can see at a glance how you’re progressing.

What Tracking Your Net Worth Does for You

First, having your Net Worth number handy lets you see how you’re doing relative to your peers. One very common way to assess your progress is by looking at how others in your age bracket are doing. The U.S. Census Bureau regularly publishes this information.

Net Worth by Age2 green

 

Are you making progress as you age?

How do you compare to others in your income category (percentile)?

Perhaps you’re familiar with the truism: “That which is measured improves”? Humans are naturally a bit competitive. We like to improve things, grow and build. Tracking your Net Worth almost guarantees you’ll begin to focus on increasing yours.

There are lots of moving parts to building a financial fortress that will provide security for you and your loved ones as you age. Your Net Worth number allows you to focus on the big picture instead of getting bogged down in the minutia.

And when you’re familiar with the big picture of Net Worth, you can see when something goes awry and get a jump on fixing it. Maybe your debts have crept up or your non-earned income isn’t increasing as fast as you’d like. The changes (or lack thereof) in your Net Worth give you a place to start a more in-depth analysis and make better financial plans.

Seeing your Net Worth increase provides a sense of accomplishment. Instead of a temporary high from spending money on a new toy, you’ll enjoy watching your wealth grow as you save and invest.

A large Net Worth, and the passive income that you can generate with a growing asset base, can provide the security and peace-of-mind you seek now, and into the future.

Now go, collect those accounts, plug them into PersonalCapital.com and start tracking your Net Worth now! I’m betting you’ll thank me later.

Live Long and Prosper, Leah the MoneyDiva.com

Sucker = Investor?

Some people never become investors because they’re afraid of being conned. The stories become the stuff of legends and, for the fearful, they define the financial landscape.

Banks pens trust quoteMy mother never quite trusted banks, she probably was indoctrinated with the fear as a child born near the end of the Great Depression. So, as she considered the end of her life, she decided to save a few thousand dollars to cover her funeral expenses.

Instead of opening a bank account for her savings, she stashed the money in a shoebox in her closet. How do I know? Because while she was visiting me in California, her grandkids back in Florida stole it and went on a drug binge. They were entrusted with the keys to her condo so they could water the plants and do a little housecleaning for her — though their drug problems were already well known.

It happens over-and-over when folks refuse to learn (or learn the wrong lesson) about how investments work and who to trust with their money (and house keys). I’m sure my parent’s experiences helped shape my do-it-yourself attitude towards investing. Combined with my love of learning and natural bent towards financial stuff, I’m fairly certain I’ll never be featured in a story like the one I just read at Bloomberg News.

Incredibly, they got several people to admit to handing over thousands of dollars to a FOREX trading website that’s now disappeared with their money. http://www.bloomberg.com/news/2014-11-13/forex-investors-may-face-1-billion-loss-as-trade-site-vanishes.html

It’s the modern version of an age-old con and, if you don’t learn the correct lessons from it, you could end up not only as a victim but missing out on the financial security knowing how to invest can bring you.

The lessons, in order of importance (IMO):

1. There’s no such thing as a risk-free investment.

Yeap, legitimate investments can cause you to lose your principle. A company can go out of business, a house or apartment building can be destroyed, inflation can surpass your interest on a bond. That’s why we diversify.

2. Know who you’re sending your money to!

Checking out the guy’s website doesn’t count as due diligence. Some completly legit brokers and financial planners have crappy websites and these con artists had a very attractive one. They obviously invested a lot of money into looking the part but none of the victims mentions anything about verifying the company or the supposed principals with any regulatory or licensing agency.

In the U.S., we have two main financial information sources:

The Securities and Exchange Commission (a federal government entity): http://www.sec.gov/investor/brokers.htm and FINRA (Financial Industry Reglatory Authority) which has a very useful piece on scams at: http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P118010

There’s a reason why we have government regulations of financial institutions — use them to do your own due diligence before sending anyone your money.

Does it mean you’ll never lose any money? NO (see rule #1) but it does make it harder for scammers to steal people’s investment funds. Not impossible, as Bernie Madoff proved, but at least he finally got shut down and went to jail.

The SeureInvestments.com guys will never be caught.

3. Understand what you invest in.

I prefer a hands-on style and I like to know how the asset or equity I invest in will make me money. If you have no idea how or why a scheme is supposed to work, you have no business investing in it.

Does that mean you’ll miss out on some lucrative investments? Probably. But it’s much harder to recover from a big loss than to live with reduced gains.

4. If sounds too good to be true…

We all know this one, and yet seemingly smart people still get caught in the web of big promises.

Some of this I’ve learned from experience, some from keeping my eyes and ears open. We all make mistakes, I just hope reading this and the linked stories helps someone else hang onto their money and their desire to become a successful investor.

Live Long and Prosper, Leah the MoneyDiva.com

Is It Too Late? Money Lessons You Should of Learned in School but Didn’t

piggy bank graduate capFunny thing about Money Rules – you either learn them from teachers or learn them the hard way, by making mistakes. If you’d like to avoid the entire “Hard-Knocks University” program, put these financial lessons from the MoneyDiva to work.

Start Investing Early and Keep at It

So, you didn’t open an IRA or 401k when you got that first job? Better to start now than never! Yes, compounded interest and investment returns are what makes the average saver/investor wealthy (Einstein’s famous 8th wonder quote). And yes, time must pass but it’s going to pass anyways so, the sooner you start, the sooner you’ll enjoy some of compounding’s benefits.

There will be ups and downs whether you’re investing in equities, real property, collectables or (heaven forbid), bonds/debt instruments. So steal yourself, hold your nose and take the plunge. Thankfully, you’ll continue to learn and grow your investment skills throughout your lifetime. But the best way to learn is to have some “skin-in-the-game”.

Read some good books, find a mentor, expect to spend some time and energy learning to invest your money. The sooner you start, the sooner you’ll get good at it.

Set Some Financial Goals

You don’t have to know exactly what you want for the next 20 or 30 or 50 years but start making some plans for your future. You’ll want some short-term goals, say that $1,000 emergency fund and debt repayment; some long-term goals, i.e. retirement income and some in-between goals like, maybe buying your next car with cash instead of another loan.

For me, I wanted to provide my kids with certain things: their first car, a post-secondary education (no student debt) and help buying their first home. I set those goals when they were very little and, not surprisingly, I made them all happen at the appropriate time.

Track Your Income, Savings, Investments and Spending

Almost as important as having goals is watching what you’re doing with your money. There are several excellent, free tools available now to make tracking your progress so much easier than the paper spreadsheets and notebooks full of account statements I maintained, even though I started using online financial tools in the early 1980s!

Mint.com allows you to automatically import your spending and make more realistic budgets. PersonalCapital.com also imports spending and income and helps you keep track of your investments. It allows you to keep track of multiple accounts, multiple brokerages and banks, all in one place with useful graphics and suggestions to improve your results.

You’re Going to Have to Make Some Difficult Money Choices

It’s a cliche but true: you can’t have it all, now. DO NOT fall for the trap of buying everything you want now, on credit, and struggling to pay it off over the rest of your life! No matter how many low-interest, low-payment loans you’re offered, you will regret mortgaging your future.

If wearing designer clothing is a top priority for you, then you may have to pair that with living in a really small space or having several roommates. And you’ll still need to set some limits – no new stuff goes in the closet until something older leaves (via consignment shop sale or a donation to charity) is a good one — really makes the value of another purse or pair of jeans clear.

Love your leisure time? Fine, so long as you enjoy the simple and inexpensive pursuits that a lower income can accommodate. It’s good to know though that some long hours and hard work early on (while investing the proceeds) can lead to a more relaxed lifestyle when your investments are earning income for you.

And, when you consider partnering up with someone, don’t overlook the financial aspects. I’m not suggesting you pull a credit report before the first date, but who you chose to share the most intimate aspects of your life with (plus have sex with) will have a big impact on your financial goals and lifestyle choices.

Money is a Poor Substitute for Real Friends and Self-Esteem

You can’t buy people’s affection (your own or others) with money, and those who try aren’t much fun hanging around with, long-term. Sure, you’ll always be able to find a date for dinner or a show when you’re picking up all the tabs but you’ll find out who your real friends are when you stop.

Rather than trying to paper over problems with gifts or loans, face the issues and make the hard decisions now – your future self will thank you!

No Matter What Your Priorities, You Must Spend Less Than You Make and “Pay Yourself First”

There are lots of ways to do this so there’s just no excuse for failing to follow this cardinal money rule once you know it. If your employer doesn’t offer deferred compensation plans (401k, 457, 403) start your own IRA. Setting up a transfer from each paycheck that’s deposited into an investment or savings account makes it a no-brainer.

Plus, as you track your spending, you’ll note areas you want to make changes to and be able to create an accurate spending plan (aka budget). Work your short, medium and long-range financial goals into the plan and those big scary goals suddenly start to seem attainable.

And, you’ll find that with the stress level of your life dialed down to a much healthier level it’s so much easier to enjoy today – because you know tomorrow is on track — to your exact specifications. As you get more comfortable working with, talking about and managing your finances, you’ll find every aspect of your life improves.

Live Long and Prosper, Leah, the MoneyDiva.com

Investing 101: Types of Investors and Traders

risk reward quadrentMany new investors find the classifications or styles of investing confusing. When you first start studying about equity (and debt) investing, you’ll find many teachers and authors talk about styles of investments and investors. These classifications often vary by the school-of-thought the author subscribes to but let’s define some of the most common.

First up, we have the Fundamentalist

You might also hear this style called Buy and Hold (or Buy and Pray by some cynics). The name refers to the fact that decisions to buy, hold and sell are based on the fundamental business aspects of the company. It is primarily a long-term investment strategy.

Another widely used term that overlaps Fundamental is Value Investing. It’s most famous success story focuses on Warren Buffet who was mentored by Benjamin Graham, a professor at Columbia University who wrote one of the most widely read books: The Intelligent Investor.

The Fundamental or Value Investor studies the company’s quarterly and annual reports and looks at the financial statements, along with the past performance to project future earnings, dividends and stock prices (or the likelihood of default on bonds). Some attention is also directed towards the economic environment the company does business in.

Technical Investors and Traders Use Market Prices

If an investor believes the markets are primarily fair and the secondary market’s prices factor in all relevant data, then instead of studying income statements and balance sheets, they look at how the stock moves relative to other issues and the market as a whole.

Charts of the stocks’ or bonds’ sales prices are studied to gage how they react to news, economic cycles or various time frames. A wide assortment of patterns are discerned; maybe you’ve heard terms like:

  • Head-and-Shoulders pattern,
  • the Darvas Box,
  • Gaps,
  • Double or Triple Bottoms/Tops,
  • Support and Resistance.

By studying these charts, the investor/trader attempts to time their transactions to take advantage of the symbol’s projected price moves.

Macroeconomics Guides Top Down Investors

This style features prominently in a technique called sector rotation. It focuses on the broad economic climate and world-wide trends, to identify which areas will expand or contract as growth rates wax and wane.

If you’ve ever heard the saying “demographics is destiny”, you’ve been exposed to the idea that larger forces impact a particular company’s ability to grow and profit as much or more than their individual actions.

Top Down investors look at places like China and India with their huge populations and attempt to find investments that benefit from the growth of these economies or changes in demand brought on by the aging populations of Western Europe and Japan.

Bottom Up Investors Follow the News

By focusing on how a particular company plans to grow or improve their products and services, a Bottom-Up investor has a lot in common with a fundamentalist. They really dig in, seeking to determine how the company’s leadership plans and executes their strategies. So, when a CEO quits or is fired, or a competitor suffers a setback, the Bottom-Up investor takes note and makes changes to their holdings.

Quantitative Traders Use Mathematics to Project Changes in Prices

An equity’s metrics and ratios guide a quant’s investment decisions. Truthfully, all types of investors need to do some numbers crunching. It’s a lot easier now with digital data and massive databases but in finance, the story is told in dollars and cents (or pounds, euros, yuan or yen).

Quants generally apply mathematical or statistical modeling to understand what drives and investment’s value and then uses that to predict a future value. Because it requires many calculations and quick responses to often small changes, pure quantitative trading requires massive databases and complex software and is reserved for large funds and money management companies.

Most investors and traders use a combination of styles but keep these general definitions handy as you learn more about investing and which of the types you want to learn to emulate.

So remember, your top five types or styles of investors and traders in the equity and debt markets are:

1. Fundamental (Buy and Hold or Value)

Uses a company’s financial statements and the general economic environment to try and project future earnings and changes in a stock’s price.

2. Technical

Based on prices in the secondary markets (NYSE, NASDAQ, etc.), technical traders are trying to project future stock price via recurring patterns in charts.

3. Top Down

Macro economic trends applied to a company or sector’s future earnings potential.

4. Bottom Up

Specific company events such as personnel changes, legal actions, new product development and competitor’s actions are factored in to project future equity prices and debt repayments.

5. Quantitative

Calculates metrics and ratios and applies mathematical formulas to project future movements in prices.

That’s it for today – later we’ll look at the mechanics of using the various ways to invest and trade the equity (and debt) markets.

Live Long and Prosper, Leah, the MoneyDiva.com

Are You Sabotaging Your Financial Life?

money gremlin… maybe not intentionally – you say you want to be wealthy, or at least secure… and yet, so many people’s daily choices about how they make, spend and save money lead to a financial dead-end.

Are you doing any of these 5 things that pretty much guarantee you end up broke?

    1. Overspend -

     Either don’t budget or avoid delaying gratification by

      going off budget

2. Acquire Too Much Long-term Debt -

   Leverage up early in life or when income is waning

3. Don’t Make a Savings Plan -

   Stems from debt and overspending AND causes overspending

4. Live with Income Stagnation -

   You don’t have the money-making skills a 21st century worker needs

5. Accept Your Poor Financial Education and Training -

    Failing to plan (which involves learning new skills) is planning to fail

At this point you may expect me to tell you it’s not your fault.

>> Income inequality is making it impossible for you to get ahead!

>> Your school barely taught you how to balance a checkbook, let alone how to make sound financial decisions and plans!

>> Your kids/parents/siblings, all keep having crisis you must, as a caring human-being, help them solve (and that always requires money)!

>> etc., etc.

Nope. I’m gonna call B***S***. And, because you’re here, reading this, I’m going to assert that you know you have some money problems and that YOU are the only one who can solve them. Just admitting that, and being willing to find and practice the knowledge and skills you need to solve your money problems is a huge step forward to solving them.

And, if I can do it, so can you. I grew up in a financially irresponsible home. My parents were always juggling the credit cards and filed bankruptcy several times. They started asking me for money when my kids were in grade school. My husband and I had some savings, had started retirement accounts and were starting to make some real financial progress.

Thankfully, I was able to help them financially several times but, I also said no a number of times. Boy, that was hard! I had to make a decision based on my priorities which were honoring the commitments I had made as an adult to my husband and my children. Only if I could do both did I offer the money. They’re gone now and I wish I could of helped more while they were alive but I don’t regret my decisions. And, I’m real certain that I’ll never have to ask my kids for money.

So, let’s talk about how these problems develop and what you can do to start solving yours.

Overspending – An inability to budget and delay gratification

The #1 solution to this problem is a spending plan. With all the free budgeting and tracking tools available online, once you make the decision to switch from a spendthrift to a thrifty spender, you join thousands of conscious consumers.

So, what stops people from using the tools? Near the top of any list is internet security. Seems we hear about a new security breach at a bank or merchant every week. One thing we don’t hear is anyone actually losing any money as a result of their expense tracking or budgeting account getting hacked. That’s because these systems import information from your credit card, bank and investment accounts but can’t make any transactions. To make a purchase or pay a bill, you have to go to a merchant or bank.

Plus, we have consumer protection laws that put the risk on the merchants, the banks and credit card issuers. When the USA switches to microchip cards in 2015, there’ll be even fewer digital money hacks. In the meantime, pay attention yes. Be fearful and avoid using tracking and budget tools? NO!

The 2 top-rated free tools for managing your spending are:

PersonalCapital.com and Mint.com

Personally, I like PersonalCapital because it has a lot of investing tools built in. I LOVE being able to see how much passive income I received in any date range! I just spend a few minutes every week verifying my transactions and putting them into the proper category and I’m up-to-date on my finances. On the downside, it doesn’t allow you to set-up a spending plan (budget). Since my savings and recurring payments are automated, a detailed spending plan isn’t what I need.

If you need to get started budgeting or want to set-up a debt repayment plan, Mint is the better choice. You’ll be able to track your spending against your plan and make course corrections on the fly.

There are lots of others out there now – to checkout many other free online budgeting tools, I suggest you start with the review at GoodFinancialCents: (http://www.goodfinancialcents.com/best-free-online-budgeting-tools/)

Piling on Too Much Long Term Debt –

Leveraging up early in life or when your income is waning

As most of us know, college students have been encouraged to take on huge debts that they must repay before making a start on achieving financial freedom. Maybe you’re not aware of the number of parents – those approaching retirement age – that have assumed college loan debt to send their kids to school?

The lenders are willing to extend large unsecured loans because they are protected. Student loans are not dischargeable in bankruptcy and many are made or guaranteed by the federal government. Lenders can garnish wages and confiscate refunds and other legally mandated payments (i.e. Social Security) borrowers are entitled to.

Though it’s extremely difficult to build a large net worth without using leverage, it’s a double-edged sword that must be used correctly to avoid serious long-term financial injury.

I believe your total debt (excluding a mortgage) should never exceed your annual income (and the lower the better). If you decide to purchase your dwelling, that payment, including the principle repayment, interest, taxes and insurance (PITI) should never exceed 30% of your gross income. That also assumes you save 10% of your income and keep the loan interest rates low (the prevailing rate for good/excellent credit scores).

But honestly, people who live financially free lives rarely have consumer debt. They save and pay cash or use the zero percent financing offers those with excellent credit can get and keep their funds invested and earning them money.

If you’ve already taken on too much debt, you’ll need to go on a debt reduction diet! That’s the one that requires you live well below your income level by cutting all unnecessary expenses, driving older cars, living in smaller spaces, and not purchasing new clothing or going on vacations until the debt is repaid.

Failing to Make (or follow) a Savings Plan –

caused by your excessive debt and overspending 

ALSO, causes your overspending

If you’ve never developed the saving habit, I pity you. Not only will you almost certainly not join the ranks of the financially free, you probably live with a mountain of stress (living paycheck-to-paycheck). You know you need to have some savings; even if it’s just that $1,000 “emergency fund”. A cash cushion will change your life for the better, almost immediately!

I’m betting your bank already offers you free inter account transfers. And savings accounts are almost always fee free (if yours isn’t, change banks). So, open an account or find that old one with the $5 balance and set-up an automatic transfer from each paycheck. Ten percent is the target amount but even $5 will do for a start.

Once you have the “emergency fund”, open another account and make a savings plan for a longer-term goal. Want to be able to buy a newer car in 2 years without borrowing? Research the cost of the car you want and divide the number by 24. Have your “car payment” deducted from each paycheck and transferred to your new account.

It’s hard to believe but once you become a saver watching the balance in your accounts grow becomes addictive – so much that you don’t even miss those daily lattes and vending machine treats you may decide to skip to make your accounts grow faster!

Income is Stagnate – You don’t have the money-making

and entrepreneurial skills a 21st century worker needs

Yes, it’s true, your wages probably aren’t keeping up with costs. The transition from manufacturing to services has caught a lot of middle income earners in the wage stagnation trap. To extradite yourself, you’ve got to take control of your career and make plans to get the type of skills that are more valuable.

In the U.S., the tax codes favor business owners over wage earners so your long-term plan should include starting your own business. And it’s never been easier to join the entrepreneurial ranks. No, I’m not suggesting you quit your 9-5 to become a full-time artist but Etsy.com offers a way to find buyers for artistic products.

A side-gig is what you’ll want to start with. Maybe it will turn out to be a full-time gig but for now, just look at your skills and find a way to make an extra income with them. Many people start with selling their excess stuff or craft items on Ebay and Craigslist. Take a look at what others are doing to see what’s possible for you.

You say you have no skills? B***S*** again! Even if your only skill is playing with your dog you can parlay your non-working time into an extra income. Checkout Dogwalker.com and Care.com or DogVacay.com. Prefer people? Help the elderly in your community; go to HomeInstead.com, TheCaringSpace.com and SeniorCare.net to find opportunities.

General purpose sites like TaskRabbit.com and gigwalk.com can help you find short-term jobs that you can fit into your schedule. If you’ve already purchased that new car and need some help paying for it, Lyft.com and Uber.com are looking for drivers in many areas.

Poor Financial Education and Training – Failing to plan

(which involves learning money management skills)

is planning to fail

Well, maybe you can cross this one off your list – you did make it all the way to the 5th item. But, it’s an ongoing process. Returning the MoneyDiva.com is a good start. You’ll find plenty of free education online these days but it’s up to you to pursue financial education and the training you need as you become more money smart.

If you’d like to discover where you need to focus, take the Money IQ test at: MoneyDivaIQ.com. You’ll answer 25 questions about how you manage your finances and get an overall score as well as a score in each of the five sections so you can plan to fill in the gaps. Return to the test as often as you like to see how your Money IQ grows!

Any more excuses? I hope not. Your financial future can be more prosperous if you simply avoid making these five mistakes.

Live Long and Prosper, Leah the MoneyDiva.com

Got Money? Know How it Works?

Economy-Heartbeat

Take a few minutes and improve your understanding of economic principles by watching this engaging video:

Tell us what you think in the comments below…

Live Long and Prosper, Leah the MoneyDiva.com

Timing the “Markets” with Warren Buffett

Binary-Options-Trading-chart Biggest investing mistakes?

Sins of omission according to Buffett.

Meet me at the bar next time you have some cash burning a hole in your pocket!

Live Long and Prosper, Leah the MoneyDiva.com

What’s Stopping You – Budgeting and Planning Obstacles

It’s hard to find anyone who’s willing to argue that planning and goal setting won’t help secure a better, more secure, financial future. So why do so many of us fail to plan?

Manana/tomorrow is the most common excuse people make when asked to spend time planning, goal setting and budgeting. We’ve always got more pressing things to do today.

Problem is, successful 21st century living requires that we overcome some pretty strong biological impulses – some of which helped us (as a species) get to the 21st century!

Recently, I found an interesting academic site ( http://squaredawayblog.bc.edu/curious ) that explores what successful financial planners do to prepare for a comfortable retirement. They’re REALLY trying to be user friendly and, you’ll probably learn a thing or two about yourself and your retirement planning process. (Hint: Chose the fruit…).

Live Long & Prosper, Leah, the MoneyDiva.com