The Amateur Financier

Two trends that seem to be everywhere now are going green and cutting down on your expenses.  Both are rather similar in concept; by cutting back now, we can ensure a better future for ourselves (or our children).  You have to have an eye towards life yet to come in order to be motivated to save money or the Earth.

They also require some sacrifice on our part.  It’s more fun to party, buy expensive things  that will just sit on the shelf, and to just throw away anything we don’t need than to worry about the costs to our pocketbook and planet.  How can we overcome our less caring nature and start to focus on the future?

First, know yourself and your motivations.  It’s easier to commit to a plan to ‘green up’ your life or to get your finances in order if there’s some strong rationale you have to do so.  You might look to your faith for reasons to protect God’s creation or to not be a borrower.  If your family feels strongly about having financial security or saving nature, you can turn to them for support on your decision.  One big motivator for many parents is protecting and providing for their children’s future; these could be all the motivation you need to save money and the planet.

Once you have your motivation, start small.  Don’t try to cut your expenses or your emissions to the bone in the first month; much like trying to go on a crash diet, you’re going to feel deprived if you change too much at once.  Instead, trying making a few changes at first, to feel out where you can make cuts without too much trouble.  Cutting down on eating out, using less electricity or decreasing your driving won’t be enough to save the planet (or your financial future) all on its own, but will be easier to handle at first, and will give you encouragement to take on bigger reductions in the future.

Since we’re trying to do two things at once, it’s good to find ways we can work on both goals simultaneously.  If you can find methods that will be good for the environment and save you money, you can kill two birds with one stone, improving two areas of your life at once.  In addition to the already mentioned areas, you can also purchase energy efficient appliances or make an effort to drive no faster than the speed limit; both methods will help to reduce your expenses and carbon emissions over the long term.

Of course, there are situations where saving money comes at the price of increasing pollution, or where the environmentally best solution costs more money.  Buying organic food, for example, can be significantly more expensive than traditionally grown food, while decreasing the impact on the environment.  On the other side of the coin, shopping at a ‘big box’ department store can cut your expenses significantly, but the environmental impact of shipping the items around the planet is substantial.

For these circumstances, the only thing you can do is try to do the best you can, according to which principle you value more highly.  If you are a die hard environmentalist, you’re obviously going to make different trade-offs between cost and environmental principles than someone who wants more than anything to live frugally.  This goes back to our first point; if you don’t think about what you are really want to accomplish, your values, and your priorities, you’ll end up facing situations where you have to choose between the two without the guidance of a prior decision.

Follow these simple steps, and you’ll be able to go green and keep yourself on the right path financially.

It’s been a while since I wrote anything on Lending Club.  At first I had trouble, since Lending Club doesn’t enable Pennsylvania residents to directly purchase loans .  Luckily, I was able to purchase a few notes through their loan exchange system.  Now, six months since I started to dip my toes into the Lending Club pool, where do things stand with my investments?

Well, not too bad, overall.  One of the loans I purchased has gone more than thirty days without making a payment, which likely means that I won’t get all (or any) of my money back from that particular loan.  I was considering selling it when it was first declining, but I was confident that it would work out (at least at first), and then I was (and still am) interested in how much I will get when Lending Club attempts to get the money that is owed.  So far, I’m still credited as owning the remaining value of the loan, so I want to know how much I will actually get back.

My current Lending Club portfolio

The other three loans I own are going fine, and should continue to generate income in the near future.  The borrowers are paying on time, and as long as that continues, I’ll be happy.  Plus, since half of the money I was using for my Lending Club investments came from Lending Club itself, the one loan failure still leaves me with one ‘freebie’ loan as well as the two I bought with my own money.  Not a bad return on invested capital.

Lending Club in Review

So, what do I think of my first six months with Lending Club?  Overall, I like it.  The interface is simple, the loans are a good investment, and they provide nice diversification from my stock mutual funds.  The concept is a very good one, lending money to people who need it, making a decent return on your money in the process.

As my finances allow, I’m going to add to my Lending Club portfolio.  I’m going to focus on higher quality loans, in the hopes that, by being less risky with my investments, I can avoid having the loans go without being paid back.  (The loan that went without being paid back was ranked E, on a scale of A as the best and G as the worst.)  By being smarter with my allocation, I’m sure that Lending Club will grow in usefulness as part of my investment portfolio.

(This is the first in a series of posts where I will rant and rave about the state of the world and how things would be different if Roger, The Amateur Financier, was in charge.  Consider them conversation starters; I’d like to hear the solutions my readers have for some of these pressing problems facing the country and world today.)

I don’t know how much of a story this was in other states, but the big news in Pennsylvania is that we finally have a state budget.  The governor and the state congress have been at odds with each other for over eighty days (that’s 8-0, nearly three months) trying to work things out; they finally reached an agreement at the end of last week, although it could be another week before it goes through (and even then, our governor had threatened to veto it, although I don’t know if that threat is still outstanding).  This impasse has had some serious consequences; government workers haven’t been getting paid, some have even been laid off, and any program or person who receives state money has been at the end of their financial rope for nearly three months.  It’s been a horrible, horrible situation.

Still More Organized than the Pennsylvania Budget

This whole ordeal has had me thinking.  I’ve been trying to come up with some ways to improve the budgetary process in the government, to avoid situations like this in the future.  (It’s either that, or start screaming in frustration at the sky.)  Clearly, there’s plenty of changes that could be made to the budgetary process.  So, I’ve taken on the task of fixing the budgeting process in my role as benevolent (well…mostly benevolent) fictional dictator and created a few solutions to make budgeting more effective.

My Solutions

No Budget, No Pay -  One of the most galling parts of the whole budget debacle is that the legislators and governor continued to draw their salaries (and benefits) while people who depended on state government money, from employees to beneficiaries of state programs, had to suffer and muddle through without any help.  So, my first change is rather simple: if a governing body can’t come up with a budget, the members don’t get paid.  Period; no ifs, ands, buts, or per diems.  Perhaps losing some of their income will inspire our legislators to be more friendly and less confrontational.  (Or we go onto the next stage: locking them in the capitol building until they come up with a workable, balanced budget.)

Balance the Budget – More directed at the federal government than the states, since all the states (except Vermont, apparently) are already required to have balanced budgets.  Nothing good will come if the federal government is allowed to lower taxes, raise spending, and push off the bill to the future taxpayers (and those of us young enough to still be paying taxes decades from now when the bills start coming due).  Eventually, something has to give; taxes will have to go up, the budget will be slashed, or inflation will climb (and in the worst case, we will have to deal with all three at once).  It’s much better to reign in the spending now, before things start to get even worse.  And on that subject…

Pay Down the National Debt – I’m not saying we need to completely pay off the national debt; there are solid arguments for some level of national debt, and many people like to invest in federal government bonds.  But reversing the trend, from growing fairly rapidly to staying steady, or better yet, declining, would definitely be a positive trend.  Gradually decreasing the amount of government bonds issued each year (the amount of new debt we take on) will slowly decrease the debt, as well as any negative effects associated with a large and ever increasing debt.

Sell (More Specific) Bonds – Perhaps my favorite idea on the subject, inspired by the war bonds sold to help finance World War II.  The concept is simple: start selling bonds that cover specific expenditures, rather than having all the proceeds from government bonds going into the same pot of money.  The same values, types of bonds and return on investment; the only difference is where the money goes.  So, now we’ll have Afghanistan War Bonds, WIC Bonds and National Endowment for the Arts Bonds, each providing money to different programs.

Think of it as an indirect form of voting; by buying bonds in programs we support and avoiding those we don’t, we’ll be able to help direct where the government places its priorities.  If the Michigan Trout Fishing Fund can’t get enough investors, well, perhaps we can do without it.  Similarly, if there is overwhelming financial support for the National Endowment for the Arts program, well, all the more reason to keep it going and expand it.  (Admittedly, this gets complicated when dealing with foreign governments buying Treasuries; keeping bonds for foreign consumption broad would be one way to avoid having foreign investors dictate US policy.)

For smaller programs, this could be the only funding that is needed.  Programs with expenses under $100 million (small by federal government standards) that get enough investor interest get funded; those that don’t, get canceled (unless they get funded by a specifc government bill).  As a result, we can trim some of the little expenses from federal spending bills without much time or effort involved.  No need for legislators to comb through the minutiae of the budget to hunt down small programs to cut; just let the market handle it.

That, in a nutshell, is my plan to fix the governmental budget system.  It might not be perfect, but compared to our current system, it’ll be a definite improvement.

It’s time to play ‘Good News, Bad News’.  The good news is that my job is going well, my relationship with my fiancee is proceeding nicely, and my net worth is steadily increasing, thanks to the proceeds from new job and the recent market upturn.  (I’m not sure said market upturn is here to stay, though that’s a subject that can wait for another day.)  The bad news is that the night shift is wrecking havoc with my schedule, leaving me with much less time for blogging and other personal finance tasks than I would prefer. For some reason, working the night shift leaves me with much less free time than working the equivalent length of time on the day shift.  I think it’s probably the difficulty in getting used to being awake when everyone else is asleep, and keeping yourself motivated when you’re one of the few people who are conscious.

Still, there are much worse fates in the world than being gainfully employed; given the current state of the economy and the job market, having a job is a good start in and of itself.  Plus, I like the work I’m doing, as well as the company for which I’m working, which makes it a pretty good place to be right now.  Hopefully, I’ll get better at balancing my social life, my work, and everything I want to do (such as blogging) as time goes on.  For now, though, here are a few good posts from the past week:

Good Posts This Week

Credit Card vs. Charge Card: What’s the Difference? – Sometimes, the difference between these two types of plastic get mixed up in the financial media.  Luckily, Mrs. Micah is here to set us all straight.  I won’t get too much into the details myself (as she does a much better job than I could, anyway), but knowing the difference is important in deciding which, if either, is right for you.

Claiming a Child for Taxes – An interesting topic I’ll admit I hadn’t really considered before, My Life ROI details the rules used by the IRS to determine which parent (or other care-giver) can claim a deduction for a child.  There are some rather detailed rules that come into play, apparently, which I did not realize.  Then again, we are talking about the IRS; there are rules for just about every eventuality you could imagine (and many others you couldn’t), so I suppose that’s to be expected.

If Taxes Were Going Up – It seems to be an article of faith in the financial media lately that taxes are going to be going up, rather drastically, in the near future.  (I think they are operating on the assumption that Democratic President plus Democratic Congress equals Higher Taxes, which is rather simplistic, at best.)  I’m not quite convinced, and neither is Frank Curmudgeon; he details how little impact higher taxes would actually have on your normal spending and saving plans, along with his own reasons for doubting the worst case scenarios being discussed.  All good advice, even if you think taxes are about to go through the roof.

Moving: Titling, Registering, and Insuring Your Car – There is a LOT that you need to do if you are moving, even more so if you are going from one state to another.  For some help on what to expect when it comes to your car, check out Stephanie’s post; it’s full of good tips, as well as some interesting facts.  For example, did you know that you aren’t allowed to smile in your license photo in Virginia?  Well, you would if you read her post!

Mortgage and Down Payment – Over on Green Panda Treehouse, big moves are afoot, and as she gets ready to take the plunge, she’s sharing all the preparation work she’s doing.  It’s quite a list of considerations, and she is definitely doing her research and being careful to ensure her finances are in order.  Good plans for everyone who is looking to own a home, and ones that could have prevented a lot of heartache in the recent past.

Where The Amateur Financier Has Been Featured

Carnival of Money Hackers – 82nd Edition on World Daily News Blog featured Financial Lessons: Credit Cards

Carnival of Financial Planning on Intelligent Speculator featured Financial Lessons: Home Buying