A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.[i]
I couldn’t be any clearer than Investopedia. Remember to refer to that site whenever you get confused. See how good it is?
There are many different cryptocurrencies on the market and many more will arrive in the future. The biggest, of course, is bitcoin. The second largest is Ethereum. Each is based on a different algorithm and works in a different way.
There are different investment categories. Some, like cash and bonds, are better for short-term investment because they are more stable but they generally have a lower rate of return. These are called ‘defensive investments’, i.e. they defend your wealth against the vagaries of fortune. Shares and equivalents are better for long-term investment because, while volatile, they offer higher potential (not guaranteed!) returns and you will have time to recover from losses. These are called ‘growth investments’ because they can increase, and not just preserve, your wealth. You will probably need a mix of both defensive and growth investments.
As an adult, you need to understand investing, just as you need to know how to drive a car, eat and exercise properly, wipe your bottom, or be able to independently support yourself through paid employment. No one is exempt.
If you want to do the math yourself, it works like this: In general, if you can live off four percent of your savings then that nest egg should last you a very long time, probably until death. We will get to the important provisos in a moment. First, let’s look at an example. Say you want to retire today on $50,000 per annum. Nice, hey? Let’s calculate:
A successful man is one who can lay a firm foundation with the bricks others have thrown at him.
– David Brinkley
It is not essential to have a high income in order to reach financial freedom. I promised a ‘poor man’s guide’, and this you shall have. However, if you can find a way to increase your income a bit, you’ll achieve financial freedom more quickly, and/or reach a higher level of financial freedom. As we will keep repeating, it is all about what you do with the money once you have it. Plenty of high-income people are floundering in debt and have no control over their finances at all.
There are two ways of dealing with your debt situation.
Method A: sort it out yourself, using the system I will outline in a moment.
Method B: throw your hands in the air, admit that you’re totally out of your depth and get professional help.
If you know exactly what your debts are, what the rates of interest are (or you can find this information easily enough), and are already making some progress towards paying them off, Method A might be right for you.
If you are unsure about exactly how much you owe or at what rate, and you are too afraid to open those angry, registered mail envelopes that regularly appear, or to answer those persistent phone calls, you might want to skip straight over to Method B.
The man who never has enough money to pay his debts has too much of something else.
– James Lendall Basford
‘Get out of debt.’ Yes, it’s easier said than done. But this is a basic, essential step that cannot be avoided. You will not be financially free until your debt situation is under control. But don’t worry, I’m going to teach you some MMA moves to get you there faster. You’re going to smash those debts like you’re playing a one-sided Mortal Kombat game.
This step comes before investing for a very good reason. Your debt is costing you. A lot. Your wealth is going backwards. There’s little point making investments until your consumer debts are paid off. As mentioned earlier, a mortgage debt may be an exception.
The shortest period of time lies between the minute you put some money away for a rainy day and the unexpected arrival of rain.
Jane Bryant Quinn
Wouldn’t it be awful if some random event came along and totally messed up your budget and forced you back into (deeper) debt? Something like a medical emergency, car repairs, losing your job for being caught reading a politically incorrect blog at work, legal fees because you get locked up in an Indonesian prison on trumped-up charges, an F-35 crashing into your house, etc. etc.
Well, here’s some bad news. As time passes, the probability of some such random, nasty event occurring approaches 100%. In other words, bad things do happen from time to time. It is not a risk. It is a certainty.
Different people have different tricks for adhering to their budget. Some only spend in cash. For example, imagine a budget of $2,000 a month, excluding savings. One could withdraw $500 from an ATM each Monday and try to last until the next Monday until withdrawing any more.
– It might be possible to have deductions automatically taken from your salary or bank account and put into a savings account or investment, if you’re ready for that. Setting this up once can help if willpower is a problem.
Even some people with very high incomes are unable to stay out of debt or to save anything for the future because of their inability to live within their means, i.e. to budget. On the surface they appear rich: a beautiful house, a luxury car, expensive clothes. Scratch the surface and you’ll often find a household in extreme financial distress, taking out more and more loans in order to keep up appearances. Things are not always as they appear. Remember: if you have an income of $200,000 and expenses of $210,000, you are a slave to debt. If you have an income of $30,000 and expenses of $25,000, you are much closer to financial freedom.
A high income is not the key to financial security. Living within your means is.
I’d just moved to the Philippines and was trying to live independently on a certain income. Wisely, I downloaded and started using a budget app to help me keep track of my spending. I had no idea how to divide up my budget because it was a new country so I tried to live a somewhat frugal life, recording each purchase for a month to see how things were going.
I knew I was spending too much. Way too much. A glance at my bank statements indicated that I was withdrawing almost twice as much money as I ought to have over the first month or two. But where was it all going?
If you set a high value on liberty, you must set a low value on everything else.
Hopefully you have been persuaded to avoid taking on any more debt, and you are now ready to ‘dig up’ instead of just ‘stop digging’. It’s almost time to make some real progress towards your financial freedom by saving and paying off any existing debts.
But you might still be wondering, how do financially secure people manage to live without credit, even if their income is similar to, or lower than, your own? How are they able to get to the end of each month with no debt, and even with some savings to add to the pile? Is there some trick to this that I need to know?
There is a trick to doing this, and you do need to know it.
Hang on, my reader yells. What makes you such an expert and why should I trust you? Are you some rich guy working in finance who will try to convince me to invest in his dodgy products? Are you someone with a high income who doesn’t know what it’s like to loiter in the supermarket of an evening, waiting for the staff to put discount stickers on the soon-to-expire meat? Why should I believe a word you say?
All excellent questions. I do not work in finance, nor do I have qualifications in that area. I am not a banker or a stockbroker or a financial advisor. I am a guy like you who waits for the discount stickers on the meat, and whose income has always ranged from low to medium.
How did I end up writing a book about personal finance?
You might be thinking, meh, I’m going to move up in my career soon enough anyway. Once I’m earning the big bucks I’ll pay off my debts, start investing, and all of that sort of thing. What’s the point of struggling through all this now when I don’t have much money anyway? It’ll be easier to do it later on.
‘Twas sailing me schooner into Shanghai Harbour not three winters past, and shiver me timbers those treacherous Chinese merchants would accept none of me recently acquired doubloons and pieces of eight! Yarrrr.