I set off to write about how our economy is primarily based on consumerism and impulse buying.   We are bombarded constantly and incessantly with advertising and entertainment media telling us to buy, buy, buy, as the shortest path to happiness and bliss.   This has left many people with credit card debt that can take years to get rid of.

The solution? Well, if we turn to the same folks who recommended to "buy, buy, buy", you will hear a myriad of quick solutions: just file for bankruptcy, settle your debt down, or transfer your balances to a credit card with a lower rate.   It all seems like a never ending pernicious cycle.

At Lending Club, our customers are taking control of their debt: over 62% of Lending Club personal loans have been used for pay off credit cards or consolidate existing debt in one fixed monthly payment at lower rates.

But what is the real solution?  To my surprise, I found this clip from Saturday Night Live with Steve Martin from 2006 that could not have said it more clearly.  It's funny and ironic that a comedy show is the one that got it right, and concise, in 2 simple sentences:

• Don't buy stuff you cannot afford;
• Seriously, if you don't have the money, don't buy it.

Here is the full clip courtesy of SNL and Hulu.  Enjoy!

@RobGarciaSJ

We’ve been hearing much about quantitative easing recently. What exactly is quantitative easing, and more importantly what does it mean for you as an investor?

The Federal Reserve is expected to announce a second round of quantitative easing (dubbed “QE2”) at its next meeting on November 3. Quantitative easing means that the Fed, which can no longer lower interest rates –which are already close to 0% - to stimulate growth, will inject more liquidity into the economy by buying government debt and mortgage-backed securities. The notable difference between QE2 and the previous round of quantitative easing implemented earlier this year is that the Fed might also buy corporate debt this time around.

The likely impact of another round of quantitative easing is higher bond prices and lower yields. Historically, the role of fixed income instruments such as corporate bonds and the Prime Consumer Notes offered by Lending Club was to offer a dampener to overall portfolio volatility, while also providing investors with sufficient current income to either reinvest or spend.  However, today’s world offers very little in terms of current income given historically low rates.  Your return from many fixed income instruments, such as bond mutual funds, is now heavily dependent upon future price appreciation/depreciation, rather than current income.

Yields on most fixed income instruments were already near all-time lows and the next wave of quantitative easing will likely result in even lower yields. So, where can fixed income investors go to get yield?

In the chart below you can see a traditional fixed income yield spread analysis that highlights the BA Merrill Lynch High Yield Master Index, Lending Club Notes, and U.S Treasuries (3-5 year durations). The Treasuries are represented here as the baseline.  What the data show is that spreads on high yield corporate bonds have fallen a great deal and are now back to pre-crisis levels, while the spreads on Lending Club’s notes remains very large.

Today, Lending Club has lowered rates on its personal loans in response to the overall economic environment, and in an effort to continue attracting prime and super-prime borrowers, who typically make decisions based on rates and monthly payments.  Even after taking into account today’s rate reduction, the yield spread on Lending Club’s Prime Consumer Notes remains near all-time highs. Our Notes also offer a relatively unique opportunity to earn current income in today’s market.

Most people with at least a modicum of interest in personal finance know how to make a budget. If you’re one of these, you know how to allocate money for your rent or mortgage, utilities, entertainment, savings, and other categories. You know that your overall money outflow can’t be more than what you’re bring it. In general, you know how to make your financial life look really good on paper.

It’s taking it off the page that’s hard. Keeping your spending according to your budget is half the battle when it comes to making your money work for you. Maybe even more than half.

Any budget newbie can tell you that a budget won’t work unless you stick to it, and any veteran can assert how difficult that is. If you’re struggling with sticking to your budget today, here are some ideas that might help.

Look at Your Budget Often
It’s easy to make a budget and then forget about it, or at least forget the specifics of how much you decided to spend and where to spend it. And it’s easy to let yourself off the hook for forgetting these, and then for spending your money differently than you had planned because you forgot.

To overcome this, keep your budget in front of you. Leave it open on your computer so it’s always there in the background. That way, your eyes will pass over it often and you won’t have any excuse for not looking something up if you forget a number.

You can also tack up a hard copy and carry one in your purse or your wallet. That way, you’ll have it wherever you need it and you’ll be able to access it even when you’re not at home.

Review Your Spending Trends Every 3 Months
Everyone knows to check how you're doing against your budget every month, while doing a more serious review at the end of the year.  What most people don't realize is that monthly reviews are not very actionable whereas an annual review comes in too late to make adjustments.

Make time every quarter to review your budget and take decisive actions to ensure you are not left lamenting overspending when your annual financial check-up comes.

Make Friends With Other Budgeters
When it comes to personal finance, there are two kinds of people in this world: those who follow a budget and those who don’t. If you’re trying to stick to your budget, make sure you are friends with people who have similar goals.

Having friends who work on a budget means you have permission from them to check yours and, if necessary, to avoid or change an outing that you can’t afford or that doesn’t fit in your financial plan for the month. You can even set up some accountability with these friends, and have them ask you each week or each month if you’re keeping with your plan.

Having budget-minded friends may also give you some ideas for how to save money and make it work better for you. Two heads are better than one, and so the more input you have, the more likely you are to find ways to keep to your budget and get more out of every dollar.

Talk About Your Budget
Don’t hide your budget away somewhere, either physically or psychologically. When you’re in the process of making it, let people know. Talk about what you’re trying to do and why you’re trying to do it. Speaking your motivations out loud will help you remember them later on, when initial enthusiasm might have faded and you’re struggling with the choices you made.

Talking about your budget also gives you the motivation to stick with it. After all, you don’t want someone who heard you talking about it to ask you how it’s going later on and have to tell them that you let things fall apart.

Use Cash! Cash is King.
If you’re really struggling with your budget, consider making most of your spending cash-based. That way, you can literally divide your money into physical piles, so you can actually see how much you have to spend on different things. When the pile is gone, you’ll have the physical reminder that you can’t spend any more there until the next month.

Some utilities and other expenses might require you to pay by check or credit card.  If you have one of these, you can still make your spending cash-based.  Simply take the pile of money and deposit in the bank before you write your check or use your card.

Follow these suggestions, they will help you out.  If you’ve come up with other ways of sticking to your budget, we’d love to hear them.

The recent recession has prompted many to look at their debt situations and try to figure out what they can do to improve matters.  Unfortunately, instead of aggressively paying off debt, most people are simply managing it.

You might think that there is little to choose from between the two, but there really are differences when you compare managing your debt with paying it off.

Debt Management

Debt management represents an approach that has more to do with remaining comfortable and shifting your debt about so that it is more… well… manageable.  Debt management might include moving your debt to a low interest credit card without really paying the balance down very quickly.  It might even include a debt consolidation loan that allows you to keep up with your current spending habits while slowly making progress on your debt.

Debt management is an attitude. It’s one that reflects someone more interested keeping things under relative control, and making small changes so that debt is paid down slowly enough that it doesn’t interfere much with your spending agenda. In the short-term, it’s relative painless; in the long-term, debt management means that you pay more overall in interest.

Debt Reduction and Payoff

Paying off your debt, on the other hand, takes a more active approach.  Instead of merely managing your debt, attempting to keep things the same, you create a plan to pay down your debt.  This involves make some sacrifices with regard to your discretionary income.  Instead of maintaining your spending habits while making something a little higher than the minimum payment, you cut your spending so that you can apply more money to reducing your principal.

Debt reduction means that you make attempts to get out of debt in the shortest amount of time possible.  In the short-term, it may mean enduring some discomfort.  However, in the long-term, paying off your debt more quickly, aside from giving you some instance sense of financial independence, will result in you benefiting from more of your own money.

Image courtesy of Andres Rueda.

Jennifer Openshaw recently caused some people to stop and stare after she wrote this article for The Motley Fool: 3 Ways Out of Today's Financial Turbulence. In it, Openshaw talks about investing strategies to consider in a post stock market crash era: "dividend paying stocks, annuities and consumer notes".

Wait a second! Did she just say "consumer notes"?  What in the world is THAT?!?

Just another fancy way of referring to investing in peer-to-peer personal loans.   Lending Club offers an innovative investment alternative that recently reached $12M in interest paid to its investors.

Here is the full interview with Openshaw on The Motley Fool's Annuity News Show.  Enjoy!

@svPatrick