Three years ago, Angela Johnson wrote an article for money.cnn.com stating that 76% of America was living paycheck to paycheck. What this tells us is that over three quarters of Americans have very little savings and would be dangerously close to being homeless if they were to be put out of a job. In today’s world, this is not a safe place to be.
Most of my life, I counted myself among that majority. There were many factors that played into that. Before marrying my wife, I was very irresponsible with my money. My employer may as well have paid me with a Wal Mart gift card because that is where my paycheck went. I also limited myself in my employment opportunities by failing to pursue my college degree. On top of this, I accumulated debt despite being unable to keep up with the payments. If this sounds familiar, it is because this describes many Americans and might possibly even describe you.
Two years ago, I decided to get a handle on my finances. We work in a profession that gives us a little freedom financially that we might not otherwise have. It occured to me that I had a responsibility to do with this excess in a positive manner. So, I started reading. I picked up some Dave Ramsey. I started reading Kiplinger’s and Money magazine. I subscribed to financial advisory emails. Anything that I could get a hold of to help me better understand the financial world was of interest to me.
Shortly after that, it began to occur to me that putting my money in a traditional saving’s account at my local bank was going to get me nowhere in my pursuit of financial security. Interest on savings accounts today are so small that you might as well bury your money in a jar in the back yard.
I started looking into investing options. This began with a small account through Betterment. As I learned a little more about the stock market, I added an account through Scottrade as well. Many people questioned why I would take a chance with my finances in the stock market with today’s economy being so poor. However, I only buy dividend stocks. This is a long game for me that ends when I retire.
Anyways, one day I was thinking about the difference in percentages between what a bank charges a person on a loan and what they pay out on a savings account. Where are you going with this, you might ask. Well, according to Morgan Quinn at money.usnews.com, about the best that a person can expect to get on a saving’s account interest-wise is 1%. However, many loans that are issued by local banks start out around 7% and that is if you have excellent credit. The majority of the profit that is being made off of my money is going to the bank, not to me. I know…. I know….. Everyone knows this.
I was looking into some other investment options one day and stumbled across peer to peer lending. For those who are not familiar, peer to peer lending is pretty self explanatory. It is loans and interest that skips the process of being moved through a bank. People lend money to other people. The site that I started lending out through is lendingclub.com and I love it. I have been issuing loans to other individuals for close to a year now and I am averaging over 10% in interest on the loans.
My wife and I still carry a savings account with our bank that we use for a bit of a buffer on our checking account. However, the days of relying on the small percentage that a bank offers on my money is over.