Monthly Archives: October 2011

Why I Give 10% Of My Blog Earnings To A Friend

Written by in Business
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Each month, I give a friend of mine a percentage of my blog earnings. 10% actually. He does no work, provides me no value, and doesn’t help promote my blog. He doesn’t even read it.

He does nothing for me, and in return, I give him 10% of the money I make from my side job.

For those wondering, no, he has never saved my life.

It sounds crazy, but what it boils down to is an investment. I have an agreement with this friend that I will give him a portion of my side business if in the future, he gives me a portion of his. Basically, I’m banking on him making millions on a side project and that paying for my retirement.

It sounds dumb, but in reality, he has a much better chance than I do to make real money. He’s a programmer and he’s always thinking of innovative ideas. He has built iPhone apps and sold them and I’m pretty confident that he will make something worth a lot of money. And I’ll be there to reap the rewards.

If you told me 3 years ago that I would have made tens of thousands of dollars by blogging at age 24, I would have either said, “that’s sounds like a pretty good life, I’m glad I won’t need a full time job, too,” or, “yah right, never in a million years would I consider myself a writer.”

I think that I got pretty lucky and kind of fell into blogging and making money by accident, this was never a plan, and boy have I been fortunate. I did not see it coming. This my friend, I see it coming, it’s just a matter of time. And I think my rather small investment in 2011 is well worth the possibly payout in 2012, 2013, or beyond.

What interests me about this type of agreement is the possibilities for other people. Would any of you invest $20,000 in my today for 1% of my future earnings? The break-even point would be $2 million, after which you’d start to make a dollar for every hundred I earned. To give you a sense of where I’m at now, I’ve taken home about $150,000 so far since graduating college. If I made that much on average, it would take about 26 years to break even, but there’s an assumption that I would increase my earnings over time.

Maybe I need to increase the buy-in? Or I can sell 100 shares of myself at $20,000 right now, pocket $2 million, and retire immediately. If I don’t make more money, I don’t have to pay you guys anything!

Readers, what do you think of my investment choice? Should I just have stuck the money in an index fund? Or is it a reasonable thing to do? What are your thoughts on investing in someone else’s earnings?

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ShopSafe: Bank of America’s One Redeeming Quality

Written by in Banking
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There are plenty of things not to like about Bank of America: Their customer service is terrible and they’re going to start charging $5 per month for debit accounts. The bank even haunts my dreams.

Well, I have good news for all you people who are hanging onto some hope that Bank of America isn’t all bad. They have one awesome feature associated with their credit cards that gives users an extra layer of protection when shopping online.

SafePass generates a temporary credit card number for you to use when making online purchases. The number is linked directly to your real credit card account but keeps your real card number protected from people who may be trying to steal it.

It seems like every few weeks another company is sending out a letter warning of hackers gaining access to your account and credit card information through their system. Well, this will protect you from those hackers getting access to any information they can use. The number would be useless to them.

For those who are hesitant to purchase online in general or from a certain store specifically, this helps reduce fraud and gives you confidence that your most important information will be safe.

Here’s how to use ShopSafe:

1. Find a product online as you normally would, and when it’s time to check out:

2. Sign into your Bank of America credit card account and choose ‘Use ShopSafe’ on the right side.

3. A popup will load and give you three options:

  • “Create a New ShopSafe Number” – Use this to start a new purchase
  • “Create a New ShopSafe Number for Recurring Payment” – this is great for magazine subscription and other subscriptions that you may not want to renew
  • “View All Active ShopSafe Numbers” – you can close the number after it’s used or view purchase activity

4. Enter the security code from the bank of your actual credit card (required for verification)

5. Set your maximum spending ammount and the length of time the number will be valid

6. A credit card will be displayed for you with your settings. Use that information to make your purchase online and you’ll be all set!

I’ve tested it out and SafePass is really easy to use and has some very practical uses. I don’t use it all the time (I trust Amazon and Google with my information and don’t want to constantly have to change my credit card information with them when the temporary card numbers expires), but if I’m shopping at a merchant I’m unfamiliar with or as a one-time thing, it’s worth the extra minute to help protect my security!

Readers, do you use temporary credit card numbers? Would you feel more comfortable purchasing online if you did?

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Lending Club Loan Selection Criteria

Written by in P2P Lending
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As you know, I’ve been focusing on Lending Club a lot recently, mostly because I recently moved to California and am now eligible to start lending!

Well, I opened a Roth IRA with Lending Club and funded it with $5,000. Each weekday, I go and search for a few loans that I like.

I invest $25 in each note, which means 200 notes for me to be fully invested. I could have chosen the auto-invest option or used Lending Club PRIME, their concierge service, but I wanted more control over my lending. At the beginning, I was looking for anything with a decent interest rate that didn’t stick out as especially risky. I avoided people who didn’t make much money and who in the answers section admitted to declaring bankruptcy. But I didn’t have a strict set of rules. Slowly I developed a set of criteria which I now stick to.

I try and select the higher quality loans that will help me achieve a greater than 13% interest rate. I try and minimize my default rate while looking for high quality loans. Here’s how I do it:

Nickel Steamroller offers a return forecasting tool that allows us to test various loan conditions. The aim is to find, based on past performance, high quality loans for the future.

Not every loan conforms to averages, but over hundreds of loans, we can minimize our risk by investing in higher quality loans. Remember, the goal isn’t to pick only the best loans out there, it’s to be a little better than average with our loan picking and to minimize our default rate. This tool allows us to do exactly that.

For example, we see that for C-rated loans, the average default rate is 4.65%. When we set just one filter, than employment length of the borrower must be 5 years or more, the average default rate drops to 4.03%. That’s great! We want to filter out those who are likely to default and get the cream of the crop. And if we filter for only those who have been employed for more than 10 years, the default rate drops all the way down to 3.76%! Clearly longer employment is good for us!

It’s not always easy to find many loans with high interest rates for people who’ve been employed for 10+ years, so for now lets stick with 5+ years of employment to give us more flexibility.

Next, I like to filter out people who have had recent inquiries. I set ‘inquiries in the last 6 months’ to ’0′ and refresh results. And the default rate goes down to 3.50%. Great!

With just a few clicks, I’ve been able to reduce the average default rate from 4.65% to 3.50%. I’ve reduced my average risk quite a bit and feel more confident.

I also like investing in loans to people who own their homes or have mortgages as this also drives down the expected default rate. Finally, I filter for people making over $4,000 per month. It drives the default rate down slightly and at a lower income, any unexpected expense could mean bad things for my loan.

Filtering in this way is a great way to avoid risky loans without even looking into the loans in much details. I also like to read the descriptions and answers for clues as to what type of borrower they are. So filtering is not the only thing I do before selecting loans. There are lots of warning signs I look for before investing money in these people.

Next week, I’ll go over what to look for when investigating a loan in more detail, and if you’re posting a loan as a lender, things to avoid! Remember, if I invest in 4 loans a week (at $25 each), I have to narrow it down even more!

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It Pays More To Have a Side Gig If You Make More Money

Written by in Business, Taxes
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I’m a strong believer in having a side gig. There are lots of benefits including extra income and security should something bad happen at work, but it’s clear to me that having a side gig is worth the time.

I started this blog over two years ago and when I moved to California, it allowed me to be self-employed for over two months. One big problem for me was paying estimated quarterly taxes, which has been taking nearly 40% of my side income. That’s a lot for someone who is trying to pay off student loan debt and save, but it’s not enough of a deterrent to stop doing it. I still get a whole lot more money than I make from watching tv and playing video games.

I’m always looking for ways to reduce my taxable income (without reducing my actual income), and even after taking some nice tax deductions, there’s no way of getting around paying your fair share. Well, I guess there is, but I don’t cheat on my taxes!

I recently came to the conclusion that having a side gig is great, but if you make over $100,000, it’s even more worth it!

Sure, it sounds counter-intuitive because someone making $60,000 with $30,000 in side income makes 50% more while someone making $100,000 with the same side gig only makes 30% more. While the percentage of additional income is greater and probably more valuable to the person making less, that additional $30,000 actual pays the wealthier person more. How?

There are some external factors at play, namely taxes. You see, $30,000 is just the additional income. It doesn’t take taxes into account. I can already hear you screaming about someone making $100,000 being in a higher tax bracket, but guess what? It doesn’t matter.

With $100,000 in income, you are in the 28% tax bracket, while with a $60,000 income you are in the 25% tax bracket. Big deal, and here’s why.

The tax brackets don’t take Social Security taxes into account. At 10.4% of income (a reduction from 12.4% in previous years), it matters much more than the 3% tax bracket increase. We pay Social Security tax on income up to $106,800, and after that, we pay nothing.

The person making $100,000 plus an additional $30,000 gets $23,200 ($130,000-$106,800) that gets taxed at the normal $28% tax bracket (plus 2.9% medicare tax). For the person making $60,000, all $90,000 of their income gets taxed at the 25% tax rate, and in addition to the 2.9% medicare tax, has the 10.4% Social Security tax added on to the side gig income.

So let’s round up:

The person who makes $100,000 gets to keep just over $20,000 of their $30,000 side gig income after all taxes, or about 33% to taxes.

The person who makes $60,000 gets to keep to keep just over $18,000 of their side gig income. That comes out to 39.9% of that $30,000 to taxes.

We can clearly see that the person making more makes more from the side gig! At anything over $106,800, side gig becomes even more worth the time effort because you get to keep more of your hard-earned money!

Readers, do you think “richer” people should work even harder to make their side gigs work because it’s worth more to them?

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