While most of us know intuitively how to budget,  many people start end up staring, bug-eyed, at a blank spreadsheet, defeated by the thought that creating a shoestring budget is an impossible task, and even more impossible sticking to it.  Budgeting feels overwhelming because there are just so many variables: cash flow, revenue, savings, cost of living, discretionary expenses, and the dreaded unexpected curves life throws at you.  If knowing how to deal with these would help you get started on a budget, keep reading for a couple of different theories that make it easy to create a shoestring budget.

Theory 1: Allocate Every Dollar
In this theory of budgeting, consumers are encouraged to figure out where every single dollar they make is going to end up. This takes them into the nitty-gritty details of their spending, asking them to figure out just how many lattes they can really afford in a month. The result is usually a detailed spreadsheet, and people who keep these kinds of budgets are often meticulous and love detail-oriented tasks.

If you are having trouble making ends meet, this may be the type of budget for you. If you can follow it, you’ll have a place for every penny and every penny in its place.

Theory 2: Only Allocate Necessary Dollars
Another theory of budgeting asks people to only figure out where their necessary expenses are coming from. Once all of those are met, any additional income can be spent however their little hearts desire. Most proponents of this style of budgeting have a loose view of what is necessary, lumping things like “saving money” on top of “making a house payment” and “buying groceries.”

Some people find this kind of budget freeing, because they don’t have to limit their spending after the essential expenses get paid. They can spend as much as they want on dining out if they have money left over, and they don’t have to worry about it. Opponents say that it encourages overspending, because people could be saving that leftover income.

What Works for You?
Consider your personality and your financial situation when deciding which type of budget is best for you. Or just choose one, see if it works, and go from there. Any budget is better than none at all, specially when you're living on a shoestring. So find out what works for you.

Have any tips to share? Leave us a comment below.

Image courtesy of Jeff Keen.

It's a fact of today's economy and society that consumer behavior has been evolving in unexpected ways ever since the Internet became available.  We seem to be moving from an voracious consumerism to a consumption based on collaboration, sharing and community.

From the moment marketplaces such as eBay and Craigslist started to become well known and became part of our day-to-day, a new movement of sharing and collaborating was born.

Collaborative Consumption is the phrase coined by Rachel Botsman and Roo Rogers to describe the rapid explosion in traditional sharing, bartering, lending, trading, renting, gifting, and swapping redefined through technology and peer communities. In their book, What’s Mine Is Yours: The Rise of Collaborative Consumption, Rachel and Roo go deep into the origins, reach and future of this movement.

Four emerging branches of this movement are peer travel reservations (airbnb), ride sharing (zimride), peer-to-peer lending (LendingClub in the US and Zopa in the UK) and co-working (The Hub) .

Listen to executives from these four companies discuss the rise of sharing and collaboration tonight.  They will lead an interactive panel discussion in San Francisco, CA on Wedneday October 27.

The panel will explore how we are moving into a new realm of consumerism, one marked by trust between strangers, shared access instead of ownership, and the primacy of experience over “more stuff”.

It's going to be a thought-provoking, mind-bending, intimate conversation.  Tickets are only $12 and there are only a few left.

Get your ticket now >>

In the mean time, I leave you with a cool short video showing what Collaborative Consumption is all about:

See you there.

@RobGarciaSJ

In the current financial climate, it is no surprise that many are interested in saving money. Indeed, even as the economy improves, a habit of saving is a good thing to develop. Happily, there are simple ways to save money every day. Here is a list of relatively easy things you can do to save money:

• Borrow instead of buy: From books to movies, you can save money by renting instead of buying. Head to your local library for books and movies alike. Movie rentals are coming down in price, from subscription services like Netflix to $1 rental outlets like Redbox. College students can even rent textbooks now for less than even buying used.
• Cut back on subscriptions: Are you really reading that magazine each month? Could you access a newspaper subscription for less online? And, of course, everyone loves to point out that you can ditch a cable subscription. Watch TV shows the day after online, or get cheaper online services like Hulu.
• Buy in bulk: There are some items that are cheaper bought in bulk. Non-perishable food and household goods can be bought in large quantities on sale, and then stored for later use. Pay attention to sale cycles so that you know when certain items will be reduced in price. Then you will know when to stock up.
• Shop for better deals: Look for better deals on everything from banking to everyday purchases. Take a few minutes to see if you can get better rates and lower fees at a different financial institution. You should also consider coupons and sales, and see if you can find a better price.
• Look for ways to save energy at home: Turn off the lights, get a programmable thermostat, switch to smart strips so you can turn of energy vampires at night. There are a number of small things you can do to add up the savings at home.
• Go generic: When practical, buy generic instead of name brand products. They cost less, and often get the job done.

With a little planning, you can save money every month. What savings tips do you have?

Photo courtesy of Kevin Collins.

We are thrilled to announce that residents from the great state of Kansas can now apply for personal loans through LendingClub.com and borrow at lower rates.

Kansas is home to nearly 3 million people, an economy that boasts over $122 billion in GDP, and phenomenally successful name-brand companies like Sprint Nextel, Cessna Aircraft Company and Collective Brands, which is the parent company of Payless ShoeSource.

Kansas is named after the river that flows through it, which in turn was originally named after the Kansa tribe, the original inhabitants of the area. The name is often said to mean "people of the wind" or "people of the south wind," which is quite appropriate since Dodge City is the windiest city in the United States (even though Chicago enjoys the famous “windy city” moniker).

Some interesting personalities from Kansas are: Amelia Earhart (aviation pioneer), NASA astronaut Ronald Evans, former President Dwight D. Eisenhower, former Vice President Charles Curtis, and former presidential candidates Bob Dole and Alf Landon.

Great movies set in Kansas include the Steve Martin comedy, Leap of Faith (1992), Paper Moon (1973) starring Ryan and Tatum O'Neal, and the all-time classic, The Wizard of Oz (1939). This was, of course, the film that coined the phrase, “there’s no place like home.”

If you call Kansas home and you’ve never heard of Lending Club, let us tell you about how our service works:

• Lending Club offers unsecured personal loans of up to $25,000.
• You can use a Lending Club personal loan to do things like refinance or pay off debt, make major purchases, cover medical expenses or invest in a small business.
• Annual percentage rates (APRs) start at 6.78% [i] which is nearly half the average starting APR of 13.15% [ii] offered on credit cards to similar borrowers.

So whether you are a Jayhawk, a Wildcat or a Shocker, we may have a great rate on personal loans for you.

As of October 19, 2010, your neighbors to the East, West and South have all been busy on Lending Club, with more than $7.5 million in personal loans issued to residents of Kansas' neighboring States through LendingClub.com:

• Missouri: over $2.7 million in personal loans.
• Colorado: over $3.7 million in personal loans.
• Oklahoma: over $1.1 million in personal loans.

Close to $170 million in personal loans has been issued through LendingClub.com nationwide and investors had received a Net Annualized Return of 9.67% as of October 19, 2010.

Want to learn more?  Check out how Lending Club works and how we can offer better rates on personal loans.

We believe our service is able to play a vital role in Kansas by providing much needed capital to credit-worthy borrowers who want to pay down their credit card debt, purchase new fun toys like motorcycles, cars and boats, pay medical bills or expand their small business.

Welcome Kansas!

@RobGarciaSJ

[i] 36 month loan of $1,000 to the highest rated borrower (Grade A1), $20 origination fee, 5.42% interest rate, $980 net proceeds, 36 payments of $30.16 at a 6.78% APR.  Actual APR depends upon credit score, loan amount, loan term, and credit usage & history.  APRs for 36 month loans range from 6.78%-24.95%. All loans made by WebBank, a Utah-chartered Industrial Bank.

[ii] Source for average starting credit card APR for consumers with "Good to Excellent Credit" calculated using headline rates on Credit Cards offered to borrowers with "Good to Excellent Credit" at www.creditcards.com as of 9/30/10.

Whenever I get the chance to speak at an event about peer-to-peer investing and personal loans, I consistently get the following questions: "isn't the concept the same as Kiva?", "are you not the same as Grameen Bank, but in the US?","it sounds like Kickstarter or Indiegogo, no?".

The answer to all three questions is "No".  Even though peer-to-peer lending, crowdfunding and microfinance share the same core concept, they are very different in their purposes and implementation.  Here is an attempt to untangle your brains:

Crowdsourcing refers to the idea that a group of people can accomplish something that would otherwise be impossible for an individual to do alone.  It involves turning to the general public or group of experts to address a need for ideas or work.  The concept is based on the philosophy that the "collective" is wiser than any one person.

Arguably, the most successful web-based example of crowdsourcing is Wikipedia, which has become a legend, taking on traditional encyclopedias (both physical books and e-versions) by enlisting collaborative content sourcing and reviewing.  Another pioneer in this space is 99Designs, which enables crowdsourcing of visual design work online.  Matt Mickiewicz, co-founder of 99Designs, explains that his company "is all about providing opportunities to designers to build their portfolios, find work, build client relationships, hone their skills, and have fun. On the other hand, we bring affordable, high-quality graphic design to start-ups and small businesses who in the past simply couldn't afford it."

Crowdsourcing is also to outsource work to the masses, independent of location.  Amazon's Mechanical Turk is one of the better known brands in this area, but two more recent web-based crowdsourcing marketplaces are making the concept more popular nowadays: oDesk and CrowdFlower.

My favorite application of the crowdsourcing concept is the process of collecting ideas from users to improve a product or service.  Check out UserVoice and Get Satisfaction for ways to create more intimate and effective product feedback loops with your customers.

Crowdfunding describes how the collective pools together money to support an initiative or project. Crowdfunding has historically been used for political campaigns, disaster relief (charitable donations), government support (taxes anyone?), and public projects.  Anti Hannula, entrepreneur from Finland, argues that the pedestal where the Statue of the Liberty is placed today was crowfunded.

More recently, crowdfunding has seen a resurgence on the Internet on sites like Kickstarter or Indiegogo, where artists, entrepreneurs, and communities  seek support for their ideas and projects from the "4F Bank": fans, friends, family and fools.  The individual seeking monetary support typically offers something in return for a donation, such as an autographed CD, discount on a art piece, or free access to a service.

Microfinance consists in providing of financial help to low-income families or individuals who traditionally lack access to banking and loans (a.k.a. the "unbanked").  The concept was pioneered by Muhammad Yunus, economist and Nobel Peace Prize recipient from Bangladesh, who devised a model to extend loans to entrepreneurs who were too poor or lacked the sufficient credit history to qualify for traditional bank loans.  He put his model to work by creating Grameen Bank: banking for the poor.

Kiva is probably the most known of a myriad of web-based microfinance institutions and facilitators. Premal Shah, president of Kiva, describes microfinance as " the way to empower others to lift themselves out of poverty."

Peer-to-peer Lending or Investing is defined by wikipedia as for-profit financial transactions occurring directly between individuals or "peers" without the intermediation of a traditional financial institution.  When you look at it carefully, you will realize that this is how lending was done centuries ago, before banks emerged and became the norm: communities borrowed and invested directly in its members.  The Internet has now made this concept available to virtually anyone, offering an opportunity for borrowers to get better rates, and investors to earn better returns.

Zopa was the first peer-to-peer lending network, opening its Internet doors 5 years ago in the UK, and growing very rapidly in the last couple of years.  Giles Andrews, General Manager of Zopa, describes his company as "a marketplace where people can lend and borrow money to and from each other, sidestepping banks".

Lending Club is the US-based leader in the space, having issued more than $170M in personal loans since its inception in 2007, and growing at a record-breaking pace.   Last month, Lending Club announced that it had payed out more than $12M in interest to its investors.

So there you have it.  Peer-to-peer lending, crowdfunding and microfinance are like triplet sisters: even though they look alike from the distance, they are quite different in purpose and in how they work.

Would you define any of these in a different way?  Leave us a comment below.

@RobGarciaSJ

Images courtesy of James Cridland, configmanager, Lewis Scott/New York Times, and Daniel Marsula/Post-Gazette.