Make Your Money Work For You

One of the primary keys to building wealth is making your money work for you. This is called passive income. When you're out working from 9-5 - that's active income. Passive income is income that you get without having to actively work for it - also called making your money work for you. Some people achieve passive income through rental properties, etc. - but I'm not in a financial position to do that just yet and the market's kind of shaky right now. So - where do I go if I want returns that are higher than a CD or money market account and I want to do something other than just buy a mutual fund?

One thing you might want to consider is peer-to-peer lending. This is a practice where you lend your money to others - just like a bank loan except you're the bank. Prosper.com is a site that facilitates just this kind of thing. Borrowers go to Prosper, post the amount of money they are looking for, tell a bit about their income situation, what they'll use the money for, etc. Prosper ranks the borrowers based on their credit score - so you, as a lender, have full information on who they are, what they're going to be doing with your money, how credit-worthy they are, etc.

Once you sign up as a lender, you can start loaning out money to people at interest rates that are more attractive than anything you could get on a money market or savings account. You can also loan in increments. That means if someone looks good and you want to lend to them, but they're seeking $25,000 and you don't have that much - you could lend them $500 or $1000. You, as a lender, get to specify how much you're willing to lend and what rate you want in return. A recent loan I saw was for $25,000 to open a coffee shop. That loan had 13 lenders contributing to it and the average interest rate was 12.9%. Pretty good returns - and Prosper handles all the repayment, collection, etc. They take a small percentage in return for their services.

Now - there are some pitfalls and things to avoid doing on Prosper, but it's a legit site that was recently written about in the Wall Street Journal. If you're interested in hearing about someone's success, go to this blog and read all about it!