Last week a guy I know at work wanted to buy some stock. He had never bought an individual stock before, so I explained to him how to open a trading account. His bank was the same as mine, so it made sense for him to open a trading account with them as I had done in the past. When he went to open the account though, they wanted an initial $3,000 investment.
When I had opened my account, I didn't need any up front investment. All I did was transfer $500 from my main bank account into the new trading one. At first I wasn't sure why the same bank would treat him differently than me, but then it dawned on me that his credit score might not be as high as mine.
When I asked him what his credit score was, he wouldn't answer me. His credit was probably horrible, and he didn't want to share it. The bank wouldn't allow him to open a trading account because he probably had a low balance and a low credit score. He couldn't purchase a stock at a great price because of bad past financial decisions.
As Jerry Maguire would plead, "Help me help you."
1. Get out of debt.
If you are in debt, pay it off first. The only debt I have is my mortgage, but even it is a huge drain on my wealth. I borrowed 195K at a fixed rate of 3.875% for 30 years. The banks love mortgages even when they are considered a "good deal" for the borrower as mine is. Run the numbers on my loan, and you'll understand why. By the time I pay my mortgage off, the total cost will be 330K!
That's a lot of profit for the bank. My rate is low too. Now consider the higher cost of a car loan. Finally, consider even worse rates for credit card debt. Do you see how powerful debt is now? It will keep you poor for your entire life, and that's the objective. How many people do you know who pay off one car only to get another? The banks love those people.
Don't be them. Pay off your debts, and don't take on any new ones.
2. Be the bank, not the borrower.
Many years ago I stumbled across lendingclub.com. I'm not there as a borrower either. For the last four years, I have been lending money to other people instead. Each note that I invest in is only $25, so my risk is spread out across hundreds of different borrowers.
If one borrower defaults, I only lose the $25 for a single note. As the banks understand though, most people pay their debts. Therefore, you can loan money even with occasional losses. You'll still make a profit over all. After all of these years and hundreds of loans, I'm still making 7% interest.
Lendingclub is not the only site that allows you to lend money. You can also use prosper.com. I use both sites at the same time to further hedge against losses. If one site is hacked or goes out of business, I will only lose one investment basket of many.
3. Before you become a bank, make your house into a warehouse.
No one should be investing extra money in peer-to-peer lending or anything else until they are well prepared. First, get out of debt, and then get prepared for winter storms, hurricanes, and other major regional problems. I'm not talking about preparing for nuclear war here either.
Work towards that if you wish, but start by preparing for the winter storm or hurricane. In my neighborhood for example, we have lost power for nine days in row before due to a winter storm. Make sure you can feed yourself and stay warm if something similar happens to you and your family.
In addition to stockpiling food, water, and supplies, everyone should also have a way of heating their home without the electrical grid. I use kerosene heaters, and I store 20 gallons of kerosene at all times. If I lose electrical power in the winter, I'll heat my home with the space heaters. Perhaps you have a wood fire place or stove to do the same.
Make sure you have the fuel needed for your heat source in advance.
4. Don't gamble with what you cannot afford to lose.
Recently I saw a famous person on here recommend maxing out credit cards to purchase crypto. We've all heard of the guy who mortgaged his home to buy Bitcoin as well.
Don't be foolish. Investing is, almost always, a gamble. The stocks, wealth management account, precious metals, and crypto I own are all gambling. I'm betting that they will be worth more than what I paid for them. Never let anyone convince you otherwise either about such things.
If you are maxing out credit cards, taking out a loan, or mortgaging your house to buy any investment, not just crypto, you are playing a very dangerous game. I'm not a financial adviser, but I do believe in financial security.
Do not risk yours on gambling.
