If you have ever wished to have more money at the end of the month, you are looking for cash flow. Traditional investing in 401k creates cash flow only in retirement, once you have hit the age that you are able to withdraw funds. The stock market only creates cash flow if you make a profit and withdraw that amount, but not until then. I have been learning about a new type of investment that creates almost immediate cash flow. It is called Peer-to-Peer lending. This is where you take a chunk of money and send it to a company, such as Prosper or Lending Club, and they disperse very small amounts, determined by you, to many different borrowers. The borrowers have a set time period to repay the loan, plus interest. Usually, they start repayment within 30 days or so, and this is when your cash flow begins. It ends when the term is finished, often 2 or 3 years or so. Because the money you loan is sent to so many different borrowers, each only getting a small amount, your risk is reduced. Even if a few borrowers default, you will still get the majority of your money back, along with interest. If you send chunks of money whenever you have them, the pay back can essentially stack up, giving you more cash flow until the loan terms start expiring. You could use this extra cash flow to pay down debt or invest in larger, more permanent investments such as real estate.
I learned about this from a company who I hired to be financial coaches for me called Tardus. The founder has created a calculator that can figure out the most efficient way for you to use this type of investing to meet your goals, and eventually potentially even replace your income. Although I am pretty savvy when it comes to money, this system is helping me stay accountable, and advance faster than I was doing so on my own. It does cost money, though they say if you don’t make enough to cover the fee after the first year, they will refund it. I am about half way through my first year, and it looks like I am on track to make at least as much as it cost, with that number continuing to multiple as I continue the process. Currently, I am set to see about a 22% cash-on-cash return, with about 10% of that being interest. For me, this is beating my traditional stock market portfolio currently by almost 5% interest, and I don’t see any cash flow from that because it is tied up in retirement funds I cannot access.
Depending on your goals, peer-to-peer lending could be a good option. Something to remember is that it is temporary, because the loan term ends and thus your cash flow does, too. There is some risk that borrowers won’t pay you back, just as there is risk in the stock market that the value will fall. However, if what you want is monthly cash flow that can be stacked up and eventually used to pay for long term investments, this may be a good option.