From the monthly archives: January 2012
Well I’ve had a Lending Club account for about 3 months now and I’m loving it! I’ve invested in 21 notes so far and have made $5.63 in interest. I haven’t yet determined how much money I want to invest there for the long run, but I have a long time before I need to figure that out.
The lunch investing strategy is working out well. For those who don’t know, every time I bring lunch 3 times to work I invest in a new Lending Club note. This contrived “incentive” is paying off well. I’m investing in a note at least once a week, and am mentally trying to bring lunch more often so I can invest more.
I’m trying to diversify across different interest rates and different terms, while trying to invest in smaller loans as much as possible. Smaller loans have smaller payments, and therefore the borrower is less likely to default. My target Lending Club allocation looks like the following:
This allocation is weighted towards higher quality A, B, and C rated notes, while still diversifying to the lower quality D-G (higher interest rate, higher default rate) loans. This target allocation has twice as many B’s and C’s as A’s and D’s, twice as many D’s as E’s, twice as many E’s as F’s, and twice as many F’s as G’s. It will take me a little while before I get to even purchasing a single G rated note, as I’m building my allocation starting with higher quality notes before going to the lower quality. My current allocation, slowly building towards the target is as follows:
As with any investment though, it’s not without risk. In fact there is probably substantial systemic risk with Lending Club. You have to trust that they are representing their borrowers factually, and that they are vetting them properly (unlike the mortgage business a few years ago). You also need to trust that they are running their business effectively and won’t go out of business any time soon.
Overall, I’m finding investing with Lending Club to be very fun and rewarding. I am always looking forward to my next transfer of $25 so that I can browse through the notes and pick my next investment. I’m also enjoying just watching for payments to come in. If you aren’t yet investing with Lending Club, I highly recommend that you do. The returns are real, and its a lot of fun!
Well, something has happened that has forced us into getting a new car. My wife’s car had decided to accelerate on it’s own and cause a minor accident. This incident caused us to feel unsafe driving the vehicle, which drove our decision to trade in the vehicle for a new one. I thought I would never buy a brand new car again, but in this case we were able to rationalize it pretty easily, which, fiscally, scares me a bit 
.
As I mentioned, we purchased a brand new car. We didn’t set out intending to buy new, but in the end it made sense (kind of? hopefully? Am I just trying to make myself feel better?). When we first went out looking we intended to buy a 1-3 year old SUV that had the equivalent towing capacity of my wife’s current car. This would have cost us around $18,000-$21,000 depending on brand, mileage, and amenities.
Research
Due to the “surprise” need for a new vehicle, we didn’t have one particular model in mind that we really knew we wanted. Thus we set out to test drive a bunch of vehicles quickly. We tried the following:
- 2008 Ford Edge – A little underpowered, and the fuel economy was not quite what I would expect from that size of a vehicle. The 2011 model got an engine upgrade, but we never got around to trying one that new. This vehicle was also a bit smaller cargo wise that my wife’s prior car.
- Nissan Murano – I can’t remember what year we tried. The car actually drove and rode very nice, but it had a CVT transmission. I’m anti-CVT .
- 2011 Kia Sorrento – I was very impressed with this vehicle. It had a high level of base amenities, drove very sporty, and was priced very competitively. But alas, I think it was the smallest of the SUVs that we tried.
- Honda Pilot – Ugh. This was a truck in a shiny package. Drove terrible, rode terrible, underpowered, poor MPG. Overall the one we liked the least.
- 2011 Ford Explorer – The 2011 model year was a complete overhaul for the Explorer. It became a crossover instead of a truck based SUV. This improved MPG without sacrificing too much tow capacity. This, or something similar, would probably what we would have decided to purchase if we had “planned” on getting a vehicle when we were ready to upgrade Anne’s car. And so the rationalization began….
Rationalization
We saw in a dealer’s online inventory that they had a used 2011 Explorer, so we tried to schedule a test drive but it was sold already. Instead we tried a brand new one just to get a feel for the vehicle. We loved it, and unfortunately didn’t have much time to wait for another reasonably priced used one to pop up. We didn’t want a pre-2011 model because it was truck based and would likely have liked it about as much as the Honda Pilot. The post-2011 models are an upgrade in cargo capacity, people capacity, and tow capacity for us. This would allow us to upgrade our camper in the future to something larger without requiring a new vehicle. It would also give us room to grow our family. Knowing what I know now about all the stuff you have to haul around with kids, this was important.
This got me looking into current incentives on the 2012 Ford Explorers. It turned out they had $1,000 cash back, $500 trade in bonus, $500 recent graduate discount that I qualified for, and I got a $300 discount through my work at a local dealer. This dealer also happened to have “take it or leave it” pricing, so I knew their prices and also knew that I would actually be getting the discounts without having to negotiate price. After all of the cash back incentives, it turned out I could purchase brand new for ~$1200 more than what that same dealer charged for the used 2011 model that they had already sold. I felt that was a reasonable trade to make to get a brand new vehicle that I knew no one had abused.
Trading In vs. Selling
Normally I would sell an old vehicle when purchasing another to not take the value loss that you get when trading in. However, due to our safety concerns about my wife’s old vehicle, we felt we had a moral dilemma about selling it to someone face-to-face. Therefore we decided to take the “loss” and trade it in to make ourselves feel slightly better, even though we know someone else will still be driving it in the future. So overall I think I lost $2-3k that I could have gotten had I sold it, but sometimes life gives you lemons that you just can’t make lemonade with.
Results
The end result is we have a new vehicle that we will be tracking at cost until Kelly Blue Book starts to track used 2012 car values. The total cost, after incentives but before trade-in, was $28,652 for us. After trade-in, tax, and an additional $3,000 down payment, we have ended up financing ~$13,700. We went with a 5 year loan at 3.39% to keep the payments low. This will help keep our cash flow up to continue investing and saving for the down payment on our next house, while giving us the option to pay extra on the loan and pay it down sooner.
Wow that’s an expensive car, but I think it was the right decision for the long term.
Anna and I have been married for about 3 months now and we’re finally starting to get our financial ducks in a row. The first thing we did was combine our earning potential into a joint checking account. This in itself was a bit of a battle in that I have for years insisted on keeping an out-of-state bank because it offered free ATM fees–as I’m sure you know, precious few banks offer that perk, so I have been loathe to give it up. Anna was quick to point out the folly of not having a local branch for quick cash, and while I have a second checking account at a local bank for depositing checks, to get any money out of it involved a complicated transfer with an online bank in the middle, it’s just too much trouble.
The matter was settled when we saw an ad for First Niagara Bank offering free ATM fees. It’s a local bank, which Anna is happy about, and offers the one perk I care about–the perfect compromise. There’s a catch that you have to maintain a balance of $1000, but that’s not so bad: $1000 = $0. You may have read that Paul also went to First Niagara, but he got a $100 bonus for joining–that deal was expired by the time I got there.
I have to say, the very first payday we had together was amazing. POW!! Both paychecks dropped on that new checking account like a bomb! I felt like Scrooge McDuck, swimming in gold coins! What are we going to do with all of this DINK money? That’s what we sat down to evaluate this weekend, and what we came up with is The Savings Laser™.
Please don't sue me, Lucas Arts.
I talked a little bit about my savings strategy in an earlier post about saving for the wedding, a few bucks out of every paycheck into a variety of accounts ranging from our Emergency fund to a Motorcycle Accessory Fund. Instead of those little trickles into different areas, why not combine all of their force into “the ultimate power in the universe,” a mighty concentrated beam of savings! Instead of waiting 3 years for the Emergency fund to be fully funded, aim the Savings Laser at it and have it funded in 5 months! POW!!
So that’s what we’re doing currently. The original $600/month stream was bumped up to $700 (Emergency gets an extra C-note now) and we’ve added another $1,400/month as the laser–the first target? A deck and a hot tub. I know, I know–why not dive into the Emergency fund and get that shored up first? Well, marriage is compromise and this is what we’ve come up with. The Emergency Fund is on its way up on its own, and it will be the next thing we fire at.
| Account | Per Month | Total |
| Home Improvement | ($200) | $618.21 |
| Emergency | ($300) | $2,135.13 |
| Travel | ($150) | $626.08 |
| Don’s Toys | ($50) | $175.25 |
| Hot Tub / Deck | ($1,400) | $158.93 |
Current list of targets for the Savings Laser:
- Deck & Hot Tub
- Emergency Fund
- New Car for Don
- Down Payment for Next House
Look out Savings, here comes the Laser.
I plan to post updates to this every once in a while, so we can watch the progress of the laser… Exciting stuff.
Don and I have decided to reevaluate how we put a value on our vehicles for our net-worth calculations. I have been using an average from Kelly Blue Book, NADA, and Edmunds that I haven’t updated in months. Who knows what Don was using….
Nevertheless, we have decided to standardize on using only NADA for our vehicle values. We came to this decision (1) to keep it simple and (2) NADA seems to be the only place that gives a value on campers, motorcycles, boats, and other vehicles. We will be using the retail value of the vehicle, adjusted downward by the condition of the vehicle. On NADA, they only adjust the trade-in value downwards, so we will take that adjustment and apply it to the retail value. The condition of the vehicle will be left up to the discretion of the individual.
Using this method, the total value of all of my vehicles changes from $43,645 to $42,071. This is both a result of the rule change and a result of finally updating them after a few months.
I would expect another change in my next monthly update due to a purchase of a new car for my wife. We no longer feel safe driving her current vehicle due to a recent incident, and are trading it in for a new car. Expect a post about that in the near future!
Well I’m definitely a few months late posting an update here and I have no one to blame but myself. Has anyone read Brace E. Barber’s No Excuse Leadership? One of the things I took from that book is that excuses are worthless, better to take responsibility and move forward.
That said, even with getting married, going on a honeymoon, and completing extensive house repairs, my net worth did not suffer all that much.
Assets: $336,039.55
Cash: $9,242.61 (-54%)
All of our cash was spent finishing up the wedding and paying off our home repairs. The new siding and the windows look great, and the wedding was a blast! Paul didn’t come, but I suppose he didn’t want to drive the thousand miles it would have taken to get there.
Property: $175,000.00
I’m starting to wonder what the deal is with Zillow. Can my house value really fluctuate month to month like this? I wonder what Zillow would say if they could see the deck and the hot tub we’re planning…
Actually, this brings up another good question about how to record the value of assets for the purposes of this project, to we record the book value or the market value? Right now I’m recording an estimate of the market value, but if we were to swtich to book I’d fall back another $20k or so, though my net worth would be more stable.
Retirement Accounts: $151,796.94 (+10%)
Things are looking up!
Liabilities: $121,836.92
Mortgage: $117,269.21
So I did try to refi my mortgage, and the funny thing that happened was my credit score came back almost 100 points below where I thought it was. You can see why this deserves a post of its own…
Credit Card: $1067.71
Car repairs. This should be taken care of once we get the check from the insurance company, which they assure us is in the mail.
Car Loan: $3,500.00
As always: this is an estimate, as I don’t yet have control of that account. however, it will definitely become a focus once we are married and no longer scrimping for the wedding: there’s nothing quite so frustrating as paying interest… Well, waiting in line at the grocery store is also very frustrating: you’re waiting to give away your money. Ugh.
Net Worth: $214,202.63 (-1%)
Not bad considering all that has happened lately. I’m hoping to see this number rise more now that we are married, with combined finances and the equivalent of a savings laser. More on that later.
Happy New Year!
Highlights this month:
- Investments: Nothing new here, although I’ve been looking into a couple of different investment strategies. One is dividend stock investing, and another is the Permanent Portfolio. Both interest me, so look for posts in the future about these. Hopefully I can start to integrate some of this into my personal investing.
- Cash: Our savings for our next home keeps climbing! This month’s savings was boosted by a nice cash gift from my grandmother. Otherwise Christmas gift giving would have kept it fairly small. Thanks Grandma!
- Credit Cards: We’ve reached our goal with our Chase Sapphire card and gotten our 50,000 bonus points. $500 cash back here we come! I would expect our CC balance to be smaller in the coming months because we will no longer be working towards earning this bonus.
- Looks like we’ll be taking a hit in the vehicle department, as a problem with one of our current vehicles is forcing our hand. We’ll be purchasing a different vehicle in the next few weeks. Hopefully our house savings doesn’t take too big of a hit from this.
Donald
Age: 32
Assets: $401,669
Liabilities: ($129,290)
Net Worth: $272,379Memberships
Paul
Age: 31
Assets: 477,660
Liabilities: ($123,725)
Net Worth: $353,935
