David Makes Cents .com

I just read an article from CNN that said “About three-quarters of all Americans think the economy is now in a recession”. I decided to write this post because even though 3/4 of all Americans beleive that we are in a recession, I bet that less than 10% actually know what the definition of recession actually is.

What is a recession?

The economists’ definition of a recession is two consecutive quarters of negative GDP growth. There hasn’t even been one quarter on negative GDP growth. This is not to say we are not in a recession now. It is impossible to tell when the recession has started until well after we are in it. This is because it takes a long time for the GDP reports to come out so we don’t know until after it has already happened. A lot of times the end of the recession is a few months after it has been identified.

What does this mean to me?

1) Bad for investors- When in a recession (which by the way I think we are), the stock market usually performs very poorly and often times goes down. This is a bad time to be holding large portions of your assets in the stock market. Generally speaking it is a good idea to move your investments into a safer assets like quality bonds or commodities. Personally, I have already done this. For the past two years, I have put $4,000 into my roth IRA. A few months ago when I saw the signs of a poor economy coming, I moved the whole balance into a money market fund.

2) Good for investors-For the savvy investor a recession can be a great time to make some great returns. Since many stocks have taken a beating lately, they are starting to look more and more attractive. Personally, I still believe we have a ways to go before the recession is over. I do try to read as many financial articles as possible to try to keep up with where the economy is. I always pay attention when I read an article about where Warren Buffet is placing his money. He is the epitome of a savvy investor and I know I want my money to be in the same place as his.

3) Good for borrowers- A recession can actually be good for people in debt. This is because of inflation. I am sure you all have noticed the spike in gas prices which has pretty much cause the price of everything else to go up with it. Well, when this happens it causes something known as inflation. Inflation causes your money to be worth less than it was before the inflationary period. This is good for borrowers because now the debt they owe is worth less and will cost them less to pay back to their creditors. No, I am not advocating getting into debt, but this is one good thing that can come out of a recession for those in debt.

4) Bad for everyone- A recession can lead to loss of jobs, tightening up of credit, and inflation. Generally speaking, this is bad for everyone. Now is a good time to “play it safe”. I don’t recommend: yelling at your boss, buying 3 new cars all on credit, leave work early etc. If you happened to lose your job, it could be tougher than normal to find another.

It seems that George Bush seems to be one of the 3 out of 4 Americans. Directly following this post, there is a video of Bush admitting that the economy is starting to look bad, even though we have had record job growth(says him). He pretty much sugar coated it so much that you forget that they economy is doing bad.

Filed under: Economy, Investing, Uncategorized by David - No Comments →

I was just reading an article that I found on Stumble Upon that made me mad! Well ok not really mad because I am a pretty mellow person, but lets just say I didn’t agree with it. The name of their post is pretty much the opposite of mine it was: Why I think P2p lending is a bad idea. So in this post I will try to prove to you otherwise and tell you about my positive experience with p2p lending sites.

Quick p2p history

Ok, so if you havn’t heard of p2p lending I am going to try to catch you up real fast because this is not really the point of the post. Peer to Peer (p2p) lending is essentially people with a little extra cash helping out those who need a little extra cash by giving them better interest rates than they would other wise get from a credit card.

Why P2P lending helps borrowers.

1) Borrowers can get credit that they would not have otherwise been able to get. With the credit crunch as it is, it is becoming increasingly hard to obtain credit. Many ordinary folks with good to decent credit are no longer able to obtain credit. I know you may be saying to yourself ” Credit is bad, these people would be better off without credit”. Well I disagree. Currently the market is looking pretty rough, some people would not be able to put food on their table without credit. If enough people had credit, the economy would get a boost and then they would have jobs to be able to pay back their loans.

2) Borrowers can get lower rates than they would from credit cards. Even though the Fed has been dropping rates left and right, credit card rates have stayed high. This is due to a dry up of credit. It is getting hard for common people to get credit anymore. Prosper and other p2p lending sites’ rates have been holding steady. This is because there is still around the same supply of people lending on these sites and the popularity of p2p throughout the blogosphere.

Why P2P lending helps lenders

1) Much Better rates! Right now the stock market is way down. Most analysts predict it to be going down or making small gains for the next few years. Investors need a place to put their money. P2P lending is an excellent place to put this. If you invest in the people with decent credit scores, you will get pretty good rates of return.

2) Good diversification. With most of the major p2p lending sites like Prosper , you can invest as little as $50 per person. If you are investing a few thousand dollars, you can have your money spread out amongst 100’s of people. All the major investors praise diversification.

3) Helping others. This is a big part of the reason I lend on p2p sites. I mainly bid on loans that are looking for debt consolidation. With these loans, borrowers are allowed to pay off all their credit cards and put all of their debt into one single, lower payment. The rates are always lower than they would to be to the credit card banks. I am letting them keep more of their own money.

Summary

One of the points that the author of the post I am responding to said was that the only reason people are promoting p2p lending is for referrals. Well in this post I HAVE USED NO REFERRAL LINKS. I would hate to be discredited by something as stupid as that. I have been investing in Prosper for a while now and have no defaults or late payments. Every one I have lent to has paid me back on time. I am currently putting another $1k into my account because I like it so much

The only reason I would put in the referring link is so that potential new lenders could receive the $25 dollar bonus that Prosper offers if they want to sign up. I am not going to put a link in my post but I will have a banner on my sidebar that is an affiliate link. If you read this and are interested in signing up, then click that banner and you will receive $25 after your first loan and so will I.

Filed under: How to Save, Investing, P2P Lending, Uncategorized by David - 7 Comments →

Every month I am going to start posting updates towards my goal of $100k by the time I graduate. As you have probably already noticed, I have a status bar on the right side of my blog. This is just to give you a nice visual display of how far along I am toward my goals. Underneath I have a timer that displays how much time I have left until my deadline(Graduation).

Up 5.6%

Since I first put up the status bar I am up 5.6% from the previous total. I was at $22,683, now I am up to $23,959. No its not because I started selling drugs or something, I had actually forgotten to add in my Prosper account to the total. If you don’t know what Prosper is, stay tuned I plan on posting about it in the coming days.

Sources of Income:

I am kind of messing this up by doing it in the middle of the month, but u gotta start somewhere and I didn’t feel like waiting all the way till next month. This info is just for the first 12 days of March. In my April update, I will probably post everything I earned for the whole month of March so you will be seeing some of the same info.

I have very few income sources right now. I have my job, which I just work on weekends b/c of school. Prosper has been doing pretty well for me, no one has defaulted on any of my loans. I just started this site so I don’t really expect to make very much at all from advertising, but I have gotten 1 click so far and that resulted in 22 cents. Horay! The name of the site is David makes cents.

Job: $121.16

Prosper: $5.64

Adsense: $0.22

I am looking into different ways to get more streams of income. I have a lot of money just sitting in the bank not getting me anywhere fast. I also have an IRA, but since the market has been doing so bad lately, I have taken my money out of the market and placed it in a money market fund. I plan on keeping it in there for a while or moving to something else that is also conservative because I feel it will take a while for the market to rebound.

Filed under: How to Save, Monthly Goal Update, Uncategorized by David - No Comments →