New Micro-Investment

While considering my current short-term investment options, I was inspired by a couple of things, especially the existence of the micro-lending market, to come up with a plan with my younger brother. This plan would benefit us both if everything works out in both our favors.

The plan is this: My brother decided to go back to school for the first time in years, and small signs exist around that demonstrates his initial commitment. And although, he's also swimming in insurmountable debt, he's also beginning to demonstrate a bit of fiscal responsibility to be on his way to financially fitness again.

His biggest revolving account balance is $7K, and here's the kicker: with a *35%* APR! Even more frightening is that the monthly periodic interest as shown on the statement seems lower than what it should actually be-- and we have no idea if, in the future, that gives the creditor the ability or right to really screw my brother big-time or what else. Well, we decided we don't care to find out.

Here were the terms of the agreement: I help pay off the $7K today. He agrees to pay me back at a 5%-10% annualized rate, depending on factors, including: 1) demonstration of being more fiscally disciplined with his own budget and ability to pay off two other substantially smaller revolving credit accounts and another relative, and 2) proof of very positive status updates and proof from classes-- nothing less than a B+-- on full course load as defined by his school district. (Cognitively speaking, he's smarter than I am. Everyone knows he can do it. He's just lazy. Even he realizes this.)

If none of these terms are met, then at minimum, he owes me the principal back + 10% annual.

If he doesn't pay me back 6 months after the mutually-agreed initial pay-back period, I'll pursue wage garnishment / debt collection against him. There is no way I will not ask for this money back this time around; it's made clear to him; and he understands. If it ever gets to that point, I'll be nice: I'll only ask back principal + 10% + lost wages in pursuing him. :)

Meanwhile, I've just found a great way to secure a 10% annual investment without worrying about market volatility.

Even at the 10% interest rate for $7K, I'll be saving him $1750 a year. Unbelievable.

Personally, the worst that could happen is that I end up with a 5% return, which is equivalent to money-market / 10-year note rates. But I do end up helping out someone in need.

UPDATE:

Loan balance is now at $10K since we added a 2nd, and final, charge account that had a 28% killer APR.

Obviously, giving my brother this loan means, to some, I fail to meet this year's short-term cash reserve goal of being in the $40K-$50K range. However, if I consider this loan as an unsecured, promissory note, just as I already do with about $2K that MT owes me personally, then in another sense, I can count it as part of my net worth. It's a compromise that seems reasonable-- it's not like I just took $10K and dropped it on a fancy international vacation or an always-depreciating and unneeded new sports car.

A Quick, Summarized Update

If you're one of the few that have been trying to follow this blog and lost hope from my lack of updates, my apologies! After speaking with one of my colleagues last night, I've decided I need to recommit to periodically post updates in some way, shape or form.

Just a real, quick 64,000 ft view of my personal fiscal updates:

- Just as everyone else has, the Retiree Portfolio has taken a beating from this past month's worth of market freefall. The great benefit of proper asset allocation, however, is the percentage loss of the Retiree Portfolio is nearly half that of the broad market indices. This comes at a time where Portfolio construction is about 80% complete, and therefore a bit bond-heavier from its final composition.

- I stopped thinking with my ego, my brain took over, and changed auto insurance coverage. This immediately saved me $1K / year.

When I got a substantial raise and moved away from the folks' nest 3 years ago, the first thing I did was buy a $50,000+ performance car. Then, I went ahead and bought my own insurance coverage from Wawanesa. Granted, Wawanesa is one of the most affordable providers out there, but after a couple of accidents and moving traffic violations, my insurance bill nearly doubled to $4K / year. Now, a couple years of playing nice and repairing my record, with two cars being covered (my own and my mother's) the premium has now dwindled by a third or so. Imagine my surprise when, for kicks and laughs, I called my parents' auto insurance provider who estimated that I could save yet another $1K! I couldn't resist the offer.

- When I purchased my latest car, something far more dependable than anything I've owned over the last few years because it's Japanese, for one thing, it still had an extended warranty that the previous owner had added on when he purchased the car new. The extended warranty was definitely the work of actuaries, as it excluded so many things with a higher likelihood of failure of which costs could easily add up, and covered few big-ticket items that, due to today's state of automotive advances, are very unlikely to fail. I didn't see the warranty as something necessary. I've been keeping tabs on Subaru to refund the pro-rated, unused portion of the coverage, which should be coming in next week. Amount = $1K. It's less than what I'd previously projected, but I'll take it.

- Still on the subject of my car, I decided to refinance my own car from Capital One Auto Finance to my own local bank. My monthly savings is $70 / month due to the new arrangement being .5% lower and the term stretched out to 72 vs. 60 months. From memory, the cost of extra 12 months of financing was something along the lines of $500-$700.

- My new job has been flying me out of town a lot. Although traveling has its consequences, one upside is the cost savings for having meals and travel expenses covered either by my company or our client. I estimate cost savings / month can range anywhere from $300-$600 / month.

- Since drycleaning expenses are around $100-$150 / month for my business casual clothes, I decided to take one month's worth of drycleaning expense money and buy super-cheap, admittedly lower-quality clothes for business-- from Costco. The shirts are <$20 apiece, machine-washable, and, contrary to the clothes that I usually take to drylceaning, I won't be having a panic attack if anything happens to the clothes. Burn spot? Discoloration? No problem! Chuck it away, and buy another $14.99 Kenneth Cole Reaction or Kirkland shirt from Costco. Bonus: My ironing skills are improving!

- My business banking account had $3K in it which I couldn't touch, while the bank was charging me a $15 / mo. maintenance fee, until I shut down my consulting incorporation as of a week ago. Today, I'm $3K "richer."

- I'm every-so-slowly cutting down the amount of clutter in my room. Psychologically, my mind feels calmer and more at ease, and there's absolutely no price you can get from that.

- Including all the short-term, real equity owed to me out there (roughly $3K from Marvell for one real estate transaction I provided assistance), I'm looking at a short-term cash reserve of $35K. What surprises me is that by adopting aggressive cost-cutting and income-saving practices, I really am within earshot of accumulating anywhere from $45K-$50K by year-end!

Future considerations:

- I'm still contemplating legally moving out to an income-tax-free state, such as Texas or Oregon. Fiscally, I could've done this already, quite easily. What's got me running into a mental impasse over this issue is whether the headache of maintaining a home out there while frequently flying back to LA is worth saving 10% of my gross income.

- Moving back home with the folks. Taking some of my savings and pay for expanding their home to make space for me while significantly increasing the value of their home, pushing it to exceed $1 million.

- I need to further analyze the practicality of owning rental income real estate vs. other passive income methods, such as owning a small business. For now, I'm sidelining rental income research.

- I want to obtain a certification that my employer said will provide me a 10% immediate raise ASAP. Come to think of it, if I pass that certification, each month I'll net additional money equal to the net amount / month that the existing rental income property that MT and I co-own brings in. So, why not get certified?

I really need to ramp up on the following:

- Find personal finance software for consolidated views of my finance and publish them here.

- Get together with colleague to put together financial modeling and reporting blog.

- Research small business ideas.

I know there are many, many topics I haven't touched upon that I promised to do. I'll work on them in the upcoming days.