I don’t know, I always thought there was serious money to be made by making high risk financial investments … but apparently not. Or at least not necessarily through peer-to-peer lending.
While offering between 2 and 5 times higher rates of return than what savings accounts offer these days, the much bigger returns available through social lending are still not, in the relative scheme of things, worth the bother (if the aim is to make money).
Back in January I worked out that basically I bring home £30 for every hour that I work for BIF and what I learnt this week is that if it takes about an hour to register with a social lender and start loaning out my money, the act of investing consumes enough time to wipe out the profit I stand to gain.
If I lend £500 for a potential 7% return that means I stand to gain £35 in several years time. Yawn. Really?! I have to do all this messing about signing up to become a lender and then working out to whom to lend my money in order to have an extra thirty-five pounds one day?
[Having said that, it does seem that many of the wealthiest people are particularly good at counting and hoarding pennies which proves that small amounts do add up.]
But what I really learnt this week was that the best way for mere mortals to create money is to be more mindful of how we spend it rather than waste life working out where to invest it.
For example Old Me wouldn’t have noticed that surveymonkey charged me £200 this week that I never knowingly agreed to pay (that is, it was buried in the fine print that they would automatically renew my subscription). It makes a lot more financial sense for me to spend my time making sure I cancel this arrangement and that they pay me back than it does for me to work out where to invest my savings. I’d have to invest £2,000 for an almost unheard of 10% return to make £200 out of my savings — and even then there’s all the banking charges that would eat into that £200.
Still, I said I would sign up for social lending and so I did. Not for the money (clearly) but because I really like the idea that I might help a person or a business that I’ve chosen to support. To find out more about social lending, this was the best simple summary I read this week.
After checking out the various lending groups I opted for Zopa (to lend to individuals) and Funding Circle (to lend to small businesses). It took about 5 minutes to fill out the online paperwork but neither was able to verify that I am who I say I am so I now need to send them copies of my passport before I can start lending. And knowing me, this may never happen. I’ve added this chore to the Maybe section of my to do list. Meanwhile I have successfully managed to invest $200 in micro loans.
Realizing that there was little (serious) money to be made through social lending I thought I might try to lend money to people in need without making a profit — that’s what led me to Kiva, an agency set up to alleviate poverty by creating a marketplace for micro finance. Kiva verified who I am through Facebook and took my money via paypal and within 5 minutes I had made 8 micro loans around the world to people including Esteban in Bolivia for his auto repair business, Maria in Rwanda for her sewing company and Aisha in Jordan for her bakery. Which is a lot more inspiring than an extra £35 for me in 5 years time!!