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How I Built Easy Passive Income With Peer to Peer Lending

Be the BankPassive income through peer-to-peer lending is one of my favorite discoveries while I was in college. It allows me to live my childhood dream of being the bank (yes like in monopoly). I can build my wealth and help others become debt-free it’s a win-win. Plus I make the highest, most consistent return of any of my investments. I love the idea of “being the bank”. I've always played the bank in Monopoly ever since I was a little kid of about 6 years old. Equally early on in my childhood development came the lesson of how banks work and make money, from my dad. To over-simplify it banks make money by investing other people's money while the government insures it. These banks take on nearly zero risk and have access to huge amounts of funds. I wanted that. I wanted to make money by lending money out so people could buy homes. If only I could get enough money, nine-year-old me schemed, I could be the bank! ProcrastinationWell, I'm currently 27 years old and have only just recently crossed the threshold into positive net worth. But luckily for me, I have still been able to be the bank, admittedly on a much smaller scale than the optimistic, Lemonade-Tycoon-loving-inner-child-I-still-am, imagined. College-age-me was busy procrastinating on my homework by desperately trying to learn if I could put my Macbook's hard drive to good use earning some extra fun money. I spent a year saving the majority of my paychecks to buy it new and as of this writing, it desperately needs a new battery and a keyboard. (My up arrow is missing, do you know how annoying that is??) Plenty of passive income schemes that appeared was always very appealing but always ran into problems. I never had the horsepower to effectively mine cryptocurrencies. Look, I just couldn't find legal brokers for binary options in the US. I think they might exist. I didn't have enough money to get past the pattern day trader rule and I didn't have what I thought was enough money to start an Amazon FBA store. (It looks like I was wrong about that one)In these procrastination-fueled how-to-make-money binges, I stumbled upon the idea of peer-to-peer lending. In the small, at the time, the world of peer-to-peer lending, started by Lending Tree if my memory serves me, one company rose above the others due to its low barriers to entry. Enter Prosper... A peer-to-peer lending site that allows its users to purchase pieces of loans in increments as small as $25. That means that for just the price of all-you-can-eat-Reno-Sushi, I was able to own a piece of someone's loan in another part of the country and help them consolidate their debt, lower their interest rate, and made money. Not only that, I earned cash flow. I deposited about 30 dollars, a practice I don't recommend for people like me who want to stick to their threshold of $25 increments. I then hand-selected a loan that I felt would be an excellent performer, based mostly on their projected returns and Prosper's risk rating. Then I waited. I'm not going to lie I was nervous. After watching so many videos about Binary Options scams and day trading I was beginning to wonder if I would be able to withdraw my money. So that's exactly what I did. I deposited some more money so that my available cash was at the minimum threshold for a withdrawal and I withdrew. Guess what? The money showed up in my bank account. So like any good finance student, whose only emotions are Fear and Greed, I deposited more money, about $300, all I had to spare, and that was tight. Four years later, when I finally had some more money to invest in Prosper again, that $300 had doubled. As a non-accredited investor I maxed out what California will allow me to invest in Peer to Peer Loans and at the time of this writing, I currently have over 118 loans with Prosper. Passive Income here we come! So how does it all work?Maybe you, like me, like the sound of being the bank and earning an income from your investments but wonder how this all operates. Let me run through an example. I purchased a $25 piece of a $10,000 loan that earns 10% interest. Now until that $10,000 loan is fully funded I don't own a loan. I'm just pending, hoping to own a loan. Once some other investors decide to join me in funding this loan and hopefully invest more than $25 so we can get this thing funded, the loan gets approved. My investment has been accepted and now I own my $25 piece of this loan. Great!Next up is waiting. Remember that time is the exponent in the equation for compounding interest. To make the math easy I'm going to pretend that a year only has 10 months. I understand that that's wrong but easier math is better to follow. A month goes by and now we get paid. The borrower makes a payment on their $10,000 loan and all the lenders who contributed get a piece of that payment that is proportionate to their contribution size. In our example we said that the loan earned 10%, which is slightly below what I've averaged on Prosper, in that case, we would get Principal x (1 + Interest)/Number of Periods. So they pay us 0.25 cents a year in interest along with $6 of principal. Divide $6.25 by twelve months and that'll get us $0.53. A rough estimate of what we would earn monthly with a $25 loan. Let it GrowCreating passive income through peer-to-peer lending takes time and or money. Now one $25 loan is not going to make you wealthy. But it can compound, which is exciting. That brings me to a feature I love about Prosper for investors. They have two forms of DRIP systems. This means that the principal and interest payments you receive show up in your account as available cash. Once your available cash reaches $25 again Prosper can auto purchase another loan based on the criteria that we've specified. That means that if someone was bringing in $25 a month they could purchase a new loan every month while their existing loans all were being paid off. In addition to that, this compounds which means that pretty quickly they'd be purchasing two loans a month, then three, etc... I don't know if you can hear the giddy-school-girl-who-just-saw-her-boy-band-crush-excitement in my voice when I talk about compound interest, but it's there. Remember, I'm still the kid who thinks he's getting to be the bank in monopoly. Maybe my small investments now can turn into something special. Creating an Income StreamLet's turn this peer-to-peer lending growth bucket into some passive income. Once you've reached a threshold on your investments, say earning $1,000 a month in interest. They could reinvest only the principal and set up an auto-withdraw for the interest. That means we've created an actual income stream. I don't know about you but when something other than my day job starts paying for my trips to the sushi buffet I get excited. If you'd like to be the bank too you’re welcome to sign up for Prosper here. I also will have a guide to auto ordering and a guide to auto investing for Prosper coming soon.ArbitrageIt's easier than ever right now to get an insanely low-interest rate on student loans or mortgages. An opportunity exists here for those willing to take it. Borrow money against your home or take out extra student loans. Then lend it out on a site like Prosper or grab some 7% I Bonds (Inflation Bonds). Tell me, what have you discovered while avoiding homework? Read the full article

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How much is the 2022 SS COLA (social security cost of living adjustment)?

How Much is the 2022 SS COLA?The Social Security Administration (SSA) announced in December of 2021 that those receiving Social Security payouts will be receiving a 5.9% cost of living adjustment in their earnings. As the largest increase since 1982, this will come as a welcome relief to nearly 5.9 million many Americans who rely on Social Security as part of their retirement. However, it may not be enough to offset this year's upcoming inflation. Let's take a look at what a COLA is and how much this 5.9% raise will feel like. What is a COLA?The Cost Of Living Adjustment, or COLA for short, is a "raise" Social Security implemented in 1975 to help keep their benefits in line with the real cost of living. This is tied directly to the Consumer Price Index (CPI). The graph below shows the Consumer Price Index from 1975 until the date of writing 4/25/2022. The simple version? If milk costs two percent more next year your Social Security benefits will increase to cover that cost for you. The 1975 initiative was designed to keep Social Security benefits from losing purchasing power due to inflation. Now with all of this talk about high inflation, it makes sense that this would be the largest increase in social security benefits since 1982 at 7.4%, with 2009 trailing for a close second at 5.8%. For those who are curious there's a great table on their website (it's toward the bottom) showing the historical increases from this program.How is the COLA Determined? The Social Security COLA measures inflation based on the difference in the CPI from the third quarter (Jul-Sep) of their last adjustment to the third quarter (Jul-Sep) of the current year. What this means is that the 2022 adjustment is only going to cover inflation from Q3 of 2021. So to cover our recent massive gas price spikes we're going to have to wait until next year. How Much Was Inflation in 2021? Inflation from October 2020 through October 2021 in FRED's terms shows an increase from 260 points to 274 points. If we do some simple math (274/260)-1 we get 0.053846 as our result. This means inflation was approximately 5.4%. Is This Enough?Yes, technically the 5.9% COLA will cover last year's inflation meaning beneficiaries won't lose any purchasing power. If anything, they may have gained purchasing power. The problem is that inflation doesn't only show up once a year as a raise. It's a gradual creep making everything cost more. Much less gradual in times of war and rising interest rates. So those receiving this benefit will have to wait another year to keep up with 2022's 7%+ projected inflation rates. What to do to make up the difference? Sitting around waiting for another guaranteed raise won't help make up for the 7% inflation we're experiencing right now. But if you have no disposable income this may be your only option. Never fear, come December 2022 the SSA is very likely going to make a new record COLA somewhere in the 7.12% range. If you do have some disposable income and are taking social security benefits you can always invest some of your excess money to take advantage of the high inflation rates. Similarly, if you're a little or a long way off from retirement and are not receiving social security benefits yet there are options for you too. #1 recommendation for keeping up with inflation is to buy government-backed securites. iBonds. Read the full article

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Mailbox Money: Why is it Critical to your Financial Success?

What is Mailbox Money?Mailbox Money is an affectionate term Financial Advisors use to describe a stream of income, that can't run out and will arrive in your “mailbox” on a consistent schedule. With the advent of Direct Deposit "Phone Notification Money" may be a more accurate, albeit less catchy, term. Social Security is the most common type of mailbox money here in the States. While Social Security may be the most common in the United States many other types of income count as mailbox money. For example, an author who consistently made $500 a month in book sales, or a government employee's pension would both count as mailbox money. Why is Mailbox Money Critical?Why is mailbox money critical? First, a word about millionaires. A statistic I've heard floating around for years states that most millionaires have at least seven sources of income. While I don't know the truth of that statement in regards to millionaires, we can see its truth for billionaires. Take a look at Warren Buffet, Bill Gates, Elon Musk, Jeff Bezos, or the Waltons. All of the people mentioned are both billionaires and have multiple streams of income. For Jeff Bezos, the benefit of the multiple streams becomes obvious pretty quickly. Let's take a look:If everyone stops buying things on Amazon... Not to fear! There's still Amazon Prime Video streaming. If everyone stops streaming... No worries! Jeff's still got Amazon Web Services' cloud-based computing platform. If every Amazon-related business goes under... He's still got Zappos. You get the idea...With multiple streams of income, each individual income source matters less.Two Alluring FactorsTwo things about this special type of retirement income are both unique and extremely beneficial, making this one of the most important pieces of a good financial plan. Mailbox Money is:- Consistent- ContinuousLet’s explore these two aspects a little further. Mailbox Money is Consistent“When it comes to success, consistency is key.”Dwayne JohnsonConsistency is key to mailbox money and your retirement plan because bills are consistent. If someone’s expenses were going to be $10,000 a month in retirement and they had social security income of $2,000 a month they would only need to plan for $8,000 a month of expenses from their retirement accounts. That means if they were retired for 30 years they would have to save $600,000* less than if they didn’t have that extra income. So even a small amount of consistent income can make a huge impact on your plan. Mailbox Money is Continuous“Continuous improvement is better than delayed perfection.”Mark TwainAs Long as we Both Shall Live...The other aspect of mailbox money that makes it so desirable is that if it’s true mailbox money, it never runs out. Pensions and social security are true mailbox money examples. They will payout until the recipient dies. This is special because depending on how long someone lives these forms of retirement income could outperform the initial investment by huge margins. The bet with most forms of continuous income, annuities, pensions, social security, etc… is on how long the recipient will live. If someone only receives 10 years of income from these sources then the plan made more money from what they paid into it. Whereas if someone were to live for forty years after their retirement the plan would likely have to pay more than they received to cover their obligations. Payouts Beyond Death...Now you don't always have to bet your health, genetically determined longevity, or proclivity for accident avoidance, against an insurance company in order to create consistent sources of income. If you want continuous income there are a myriad of other options. Real Estate rentals are one that comes readily to my mind. Other options could include purchasing dividend stocks or creating a business, book, or boutique. By creating a succession plan and passing your real estate holdings or businesses onto your children you can help give them some regular income even after you've died. The same thing applies to permanent life insurance and most annuities and pensions too. Depending on how you set them up they'll cease payments after you die, or after both, you and your spouse die, or some can continue paying your beneficiaries for a set time after both you and your spouse have passed on. The only downside to these options is that, since the payout time frame will be longer the amount per period will be less. For example: If I retired and bought an annuity to pay me until I died it might pay me $500 a month. But If I wanted that same annuity to pay me or my wife until we both died it might only pay $400 a month. If I wanted it to pay my family until ten years after I died it might only pay me $250 a month. Ways to create your own mailbox money- Get a Job with a Pension- Purchase an Annuity- Invest in Rental Real Estate- Invest in Dividend Producing Stocks- Purchase Permanent Life Insurance - Create a Blog or Online Store- Use Crypto Defi Staking to create consistent income- Create a Business with solid management and let it runI'll cover these topics in more detail in later posts and link them here. But I'd say the easiest options on the list are getting a job with a pension or purchasing an annuity. While the most upside potential is for sure creating a business online or otherwise.Owning your own business allows you to get paid what you are worth. In the butchered words of one of the Sharks from Shark Tank "As my own boss, I was the only one I had to ask for a raise, and I was very accommodating." *Wink to camera*What’s the takeaway?Successfully planning for retirement early or not is a big task. By prioritizing building some consistent sources of income into a portfolio people can reduce the amount of money needed to retire.  To learn more about building passive income check out my other post. How I Used Peer to Peer Lending to Build Passive Income. *A 4% return on a $600,000 portfolio would return $24,000 annually, or $2,000 per month, enabling the holder to spend $2,000 per month in perpetuity without ever needing to touch the principle. Read the full article

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11 Things You Probably Forgot to Budget for moving from an apartment to a home

11 Things You Probably Forgot to Budget for moving from an apartment to a home

Now that you no longer have a landlord looking over your shoulder and reminding you about your late rent. You also no longer have a landlord looking out for all the things that go wrong with a house. In the words of Paramore: “Ain’t it good? Being all alone?” Ain’t it good?Being all alone?Paramore Gardening/ Landscaping May your lawn stay green. While living in Condominiums, renting, or…

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Seven Robinhood Order Types and how to Improve your Investing

Seven Robinhood Order Types and how to Improve your Investing

For those unfamiliar with stock trading and the investing world, the amount of choices Robinhood presents can be daunting. After reviewing the choices I noticed there were some new ones that even I didn’t recognize at first. You are able to buy and sell stocks and while the ordering options for both are relatively similar there are some subtle differences. Most often they work opposite each…

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The Best High Yield Savings Accounts of 2022

The Best High Yield Savings Accounts of 2022

Definition A high yield savings account is a savings account with a higher than the average interest rate. These are usually banks or credit unions that are exclusively online. By not having to pay for rent, tellers, bankers, managers, etc… they’re able to provide you with a higher yield. A higher interest rate means more money in your pocket. Look, this isn’t an investment. This likely won’t…

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My Amazon FBA Experience - Part Two: The Second Six Months

My Amazon FBA Experience – Part Two: The Second Six Months

I wrote about my first six months earlier. If you’ve read that you’ll remember that a lot of those first few months were spent on setup. Most of the setup was filling in forms and obtaining documents that allow me to sell legally, buy items with no sales tax, and pay employees. Obtaining an EIN: allows you to pay employees Obtaining a business license: registers a business in it’s city of origin…

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How to Purchase Stock on Robinhood iOS app

How to Purchase Stock on Robinhood iOS app

Installing the Robinhood app is a great start to your finance journey! But that doesn’t make you a seasoned investor just yet. In case you were wondering how to buy something here’s how. First, open the app and navigate to browse. The magnifying glass is a search button. How unoriginal! You can search for any stock you’re looking for using the ticker symbol or the name of the company.…

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How to Calculate Savings when Refinancing your Student Loan

Free excel sheet for any nerds out there.

Photo by Edmond Dantès on Pexels.com Compound Interest Equation So you want to refinance your student loan and save some money. Great idea! Let’s do the math and see how much money you’ll actually save. First up, what’s the equation for this math? If you don’t care feel free to skip to the free excel download at the bottom. However, if you do care (And I do) here’s the equation: P (1 +…

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What Happens When You Pay Your Student Loan During Refinancing?

I did the research so you don't have to. Here's exactly what happens when you make a payment during a refinance.

What Happens When You Pay Your Student Loan During Refinancing? There’s a waiting period that occurs when you refinance student loans. Company B pays the loan currently held by Company A and now you owe Company B instead of the original Company A. This process can take a few months for both companies to get their loans in synch. So what happens when you make a payment to Company A during that…

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How to Refinance Student Loans and Save Thousands!

Ever wonder how to Refi your student loans?

Intro So you want to refinance your student loans. That’s great! No one likes making their student loan payments month after month. So let’s do something about it. Why you should refinance your student loans ASAP With interest rates at historic lows, now is the best time in recent history to refinance your student loans. Plus with education costs at historic highs, it probably wouldn’t hurt to…

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Why God wants you to Invest Instead of Save

Why God wants you to Invest Instead of Save

Alright this is a long quote so bear with me. We’re gonna start with a bible story. The is one of Christ’s parables. And I’m going to use it to demonstrate some very worldly concepts instead of the intended spiritual meaning. Can we agree that nearly everything in the Bible has two meanings? Ok if we can agree there let’s move onto the story: 14 “Again, it will be like a man going on a journey,…

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7 Simple Reasons Ebenezer Scrooge is Actually a Fantastic Role Model

5 Simple Reasons Ebenezer Scrooge is Actually a Fantastic Role Model

Photo by Lisa on Pexels.com Ebenezer Scrooge was many things to many people. Lover, employer, lender, tyrant, debt-collector, uncle, friend, business partner. But I think we can all agree he is most well known for his singular negative quality: his “Scrooginess”. He was created to represent everything wrong with greed, fear, selfishness, and obsession. Furthermore, Charles Dickens did such a…