Have you ever turned on CNBC and watched it for a bit? If you have, I imagine you had one of two reactions. It’s either “Wow, I can’t believe something could be so boring” or “I can’t believe something could be so fascinating.” There’s no middle ground - at least from the people I have talked to. I’m one of the people that find it fascinating. My wife, well… let’s just say she’s in the other group.
Reporting on companies is a staple of almost all of their programming. If you watch it long enough you get an idea what companies do and how some are performing. It becomes a soap opera or perhaps one the first reality shows on television.
For someone fascinated with the stock market, there’s a danger here. It’s very tempting to think that you know what a company is going to do. And if you think you know what is going to happen, it’s even more tempting to buy or sell stock in an attempt to make a quick profit from it. This is what a stock trader does. Some stock traders do quite well - Timothy Sykes comes to mind. Some of them (perhaps a majority) do not to well; they end up losing most of their money.
Then there are the investors. These people buy stocks for a long time. Often they’ll buy groups of stocks via index funds. The fees to invest in these funds are low and, on average, the returns have been positive over any considerable length of time. This is widely considered a sound way to build wealth. Unfortunately, CNBC doesn’t often devote much of it’s programming time to this way thinking. It’s much more exciting to follow the twists and turns of various companies the steady march upward of index funds over a long time.
I’m finding myself caught in the middle. There’s a large part of me that wants to be a trader. It seduces me into thinking that I’m smarter than the market and can make money this way. Another part of knows better and tells me to continue to invest. It says, “Studies show that you can’t time the market. Other studies show that index funds out-perform individual stocks on average.”
I would only endorse two options for someone caught between trading and investing. The first would be to ignore the trading, shut off CNBC, and get more exercise. The other would be to set up an account with 5% or less of your net worth and start trading. Get it out of your system. If you can turn that into a pile of money, that’s great - take half off the table and start again. If you lose it, then perhaps trading isn’t right for you; stick to a buy and hold philosophy.
—
Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.
A couple of weeks ago, I reached for a gallon of milk and nearly fell over. It wasn’t that the milk was heavy or the floor was slippery. No, it was the price tag that caught my eye. The gallon of milk was $4.50. I realize that by choosing to live in northern California, I’m going to pay more than much of the nation. However, I was not prepared for the $4.50 price tag. It’s not just the cost of milk that has gone up, but the cost of food in general. It’s not just food, but it’s gasoline as well. If that’s not enough, I’m looking forward to a future with a broken health care system (I have no confidence it will be fixed by the time I’m ready to start depending on it… in 30 years).
I can look at all these things and cry, or I can do something about it. What can I do? I can invest in the companies that make money off of me. When gas prices go up oil companies make more money and their stock goes up. By buying stock in those oil companies, I hedge my oil prices. Jeremy from Generation X Finance wrote a great article about hedging oil.
Last year I became concerned with the rising costs of health care. I decided to invest in Vanguard’s Health Care ETF (VHT). I haven’t invested enough to offset all my future health care costs. It is impossible to totally offset future health care costs as I don’t know what potentially expensive care I might need.
Lastly there’s the cost of that milk. It turns out that it’s pretty difficult to invest in specific foods. However, it doesn’t mean I can’t hedge the cost of rising food prices. One way to do this is to buy PowerShares Agriculture index. It invests in contracts for sugar, soybeans, corn, and wheat. Nicholas Vardy from Seeking Alpha makes a great case that demand for food will rise while supply is being reduced. His conclusion might have been premature as it’s performed well recently.
There are more costs that are rising out of control. If I had children, I would like to buy an ETF or mutual fund that invests in colleges. Unfortunately, such a thing doesn’t exist. If you could hedge the rising cost of any one thing in your life, what would it be?
—
Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.
For a very long time, I believed money management was a simple matter of knowing math. I thought that the reason why people had trouble saving money was that they didn’t understand a few basic personal finance concepts. I figured, if everyone knew how compound interest worked, they would surely invest money today in order to have twice as much in 7 years.
I still believe that math plays a predominant role in personal finance. However, I’m starting to think more about psychological factors. I noticed that people in debt may be compulsive shoppers. Some people bought comic books and have decided to sell them (see personal goal #8). For others, Magic Cards are the thing. If you find yourself in debt and spending money you don’t have on these hobbies, it may be time to look for a new hobby. I decided to take up writing, which actually makes money. My wife prefers hiking, a very frugal hobby which helps her health.
Some have marveled at how the writers above have made such progress on their debts. Obviously they educated themselves about personal finance and took a series of logical steps to turn their finances around. I would go a step further and suggest that their focus helps them psychologically. Perhaps Ben from Money Smart Life said it best:
When I’m focused on working hard to increase my salary, saving more money, and getting a better investment return I tend to spend less money. I’ve had to work hard to build our net worth, the last I want to do is turn around and spend it away. On the other hand, if I’m not thinking about how many hours I had to work to earn money or what our portfolio returns are, I’m more likely to spend a little more money.
I have seen this in my own personal finances since I started writing about money. Perhaps the key to making the most your money is to do something that keeps your mind focused on the goal rather than some mathematical equation as I originally believed.
—
Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.
[This article may only be relevant those of you who have blogs/websites.]
When I started lending money on Prosper nearly two years ago, I didn’t think too much about it. I deposited $100, lent it out, and then didn’t think about the money for another two months. I went back to look at my Prosper account and put a little more money to work about the time that I started Lazy Man and Money. I continued to add money at a regular pace, writing about my experiences, and trying to maximize the use of my money. After a few months, some important people at Prosper noticed my writing and we began to correspond regularly.
As luck would have it, Prosper decided to start a referral program. By joining it, I could earn money from Prosper doing what I had always done, writing about Prosper. I could have gone back to all my old articles and added my referral code (probably still should) . However, I’m much too Lazy for that. So, I simply insert the referral code in any new article about Prosper. [Editor's Note: Any Prosper page not part of the Blog or Forum can have your referral code added to the query string -- http://www.prosper.com?referrer=<screenname>]
It was around day 10 of the program, when Prosper called and said, “What are you doing to attract so many people?” I told them the simple truth - I didn’t know. I explained what I did, but I couldn’t really tell them why it worked. Without being able to track where people are coming from my hands are tied. There’s no easy way to know if people are coming from a button on my site, an article that I wrote three months ago, or the link that I put in my RSS Feed. A couple of months later someone different from Prosper asked me my thoughts on the referral program again. They specifically wanted to know how it could work better for me. Most recently, they asked me to write this article to share my “secrets” with you. I prefer to write articles about how to handle your finances rather than ones on how to make money online, but hopefully this will be of help to someone. There’s no one secret to referring people. My successful recipe requires many ingredients.
Have a personal finance blog My blog has a broad appeal since everyone deals with money in some way. However, my blog is also focused in that it deals with only core concept - money. I don’t ramble about my cat one day and Ron Paul the next. I would caution against being too focused. If all you write about is Prosper, you’ll likely only have people from Prosper visiting your site. There’s nothing wrong with that, but your readers have already made the decision to join Prosper.
Write about Prosper - This sounds like an easy one, but I know a lot of people with just a button on their website. That’s their whole plan for referring people to Prosper. While a button is nice, your readers like to read what you write. Of course, writing about Prosper is a lot easier if you’ve used it at some point. I’d recommend making sure you are diversified, before you sign up.
Network with other Bloggers - I didn’t do this just for Prosper, but I wanted to learn from people. One friend of mine is a powerful blogging source, who has had millions of visitors to his blog. I noticed that he had written about Prosper, yet didn’t join the referral program. I politely asked him if I could pay him to add my affiliate code to the link in his article. He was kind enough to do it for free. This is one of the many reasons why he’ll easily have 5 million people visit his blog this year: What’s It Like to BORROW Money with Prosper?
Place ads on your RSS feed - I run my blog on Wordpress, which gives me a few options to do this. I use Text Link Ads’ Feedvertising product. However if you don’t want to join their program, you could simply grab this sig2feed plug-in.
Focus on Lenders - Perhaps it’s the nature of my blog, but I’ve had very little luck getting borrowers to sign up for Prosper loans. I had thought that there would be some people with big credit card debt that could benefit from Prosper. I can’t say why this is the case, but I’m not going to swim upstream and try to write how borrowers can benefit. Your experience may differ from mine.
That’s all I do. If I really wanted to spend a lot of effort promoting Prosper I’m sure there are other ideas that I could implement. However, I’m going to continue to do what I’ve always done. I don’t want to get caught up in the trap of writing specifically to try to generate money. My readers would realize that I’m not providing any unique ideas and stop coming. Every blog owner knows that readers are the lifeblood of the blog.
—
Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.
If you’ve been reading about personal finance for any length of time, you’ll come across various tenets. One example is spend less than you earn (or alternatively earn more than you spend) - but we’ll cover that another day. Today, I’d like to focus on paying yourself first.
When you pay yourself first, you set aside some of your monthly income for the future before you pay your bills. Many times people actually consider themselves one of the debts they need to pay. It certainly sounds a little backwards. Let’s examine the psychology of how this might work.
My good friend Joe was an early adopter of the Apple Ipod. He couldn’t believe how much music could fit into 10 gigabytes of storage space. The other day we were talking and he’s said his 60GB Ipod is getting close to full. He has a little video, but not more than 5-10GBs. It turns out that this is a well-known phenomenon called Parkinson’s Law. Parkinson’s Law can best be defined as “the demand upon a resource always expands to match the supply of the resource.” Examples of this include “work expands to fill the time available” and “possessions expand to fill the space available for them.” If you ever run out of closet space, chances are you are a victim of Parkinson’s Law as well.
What does this have to do with paying yourself first? Everything. Parkinson’s Law can easily be applied to your money. In short, the demand for that money expands to match the supply. This “new demand” prevents many people from saving money and getting ahead. By paying yourself first, you are effectively hiding that money from yourself. Your supply of available money is smaller. This could help you budget better and live more frugal.
Give paying yourself first a try in 2008. I think you’ll find that you have a nice little nest egg before 2009.
—
Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.
