The last few posts have been explaining how crypto got here, and what Bitcoin and Ethereum are. All of this in line with my main objective, to help *you* learn what crypto is, and how it is going to have major role in your life in the future. I can’t put enough emphasis on that.
I don’t want you to negate the importance of the personal financial decisions and the short term implications though. It would be counterproductive to put yourself in an unnecessary financial predicament that would cause you to sell *any* BTC and/or ETH because you failed to anticipate an expense, or a surprise occurred. Think LONG TERM. Don’t let life’s surprises ruin your momentum.
Connecting and bringing these two concepts together is what is going to make life easier for you. The people that -> use financial knowledge to their advantage + learn and utilize disruptive technology + think and act *long term* → Winners
I will walk you through my personal finance framework. I am going to keep this basic, simple, and actionable. The idea is that you can use this to help you, or others who can benefit.
The *Primary* Pillars : 1. Income and Expenses 2. Investments 3. Independence
Today I am covering the basics on these and want to help you adopt the level of thinking here that is going to help you navigate life and see that you’re making a mistake if crypto isn’t in your portfolio.
Side Note: Yes, I understand insurance and end of life decisions are primary pillars as well. I am covering these 3 basic’s as they are most applicable to the newsletter for this week. Regarding insurance and EOL decisions, I strongly encourage you to have yourself covered and have solid insurance coverage for *all* your needs. Have your assets and loved ones covered in case anything happens to you. Do not be irresponsible.
1. Income and Expenses
Income - Expenses = Savings
Wherever you are in your career, or your business, you are making money and unfortunately have bills to pay. These expenses weigh you down. The more *unproductive* expenses you have the more limitation you have put on your growth. To think about it and understand your situation I believe it is best to see it on paper.
I want you to construct a T chart and organize it.
EXAMPLE:
Note this is without *any* investments and a VERY low estimated cost on miscellaneous expenses assuming this person isn’t going out every week, has no credit card debt, no kids, no pets and only paying for a few services like Netflix, or any other subscription based service.
These net expenses takes us to a lesson here -> Go through your last 3 months of statements and add up ALL the unnecessary expenses you have made and see if it was worth it.
Action #1: Have *at least* 6 months of expenses saved.
If you don’t have 6 months saved, get there ASAP. This is going to be the most important and urgent piece of advice I will give to you in this article.
6 Months of Expenses in Example= $15,900 ($16K)
This is going to turn any emergency situation into a simple inconvenience. It is a lot nicer and takes the weight of the situation off your back knowing you can pay for it and aren’t going to take on debt to pay it off.
Action #2: Increase your Income
The person above is making ~ $50K annually at their job (post tax). That is the around the average annual income in the United States.
Now, given they are only saving $1550 month, and for this example we are assuming they have $0 in savings, it is going to take them almost 1 year to save for the emergency fund. That is hoping no surprises occur and nothing bad happens → No job layoff or job relocation, no illness/hospital visits/injuries, unexpected expenses, etc.
We all know in the current economic environment, costs are consistently rising. The need to save, spend less, grow income, and grow investments has never been more important. If you are not focused on this, or just taking it slow, *wake up*. This is not going to stop. Inflation isn’t going away, the rate of it is already understated, it will eventually slow down, but the costs will still continue to rise. Your job isn’t going to save you, you have to set yourself up for financial success.
The obvious next step for this person, and YOU, is finding a better, higher paying job if you aren’t going to be making over 100K a year. If you have a job that is going to allow you to work toward that and you can make it happen in the next year or so, make it happen! For those readers who aren’t in that situation, right now is a great time to find a job because everyone, everywhere, needs employees. Get out there and find yourself a better job so you can improve your finances.
Action #3: Reduce your Expenses
This is only going to take you so far. If you’re carrying around a load of credit card debt and consumer debt PAY that DOWN asap. This is another ball and chain that is going to slow you down. Do not carry this around forever.
This step of cutting expenses will help you in the short term, but I am not going to write several paragraphs on clipping coupons and cutting costs. The truth is that cutting costs is not going to help you become wealthy, it’s going to keep you in a *losing mindset*. You want to make more money so you can own more assets. You want to make more money so you can pay for services that *save you time*. You all know what to do.
Stop going out every weekend, stop drinking, stop buying designer clothes, stop trying to impress people, stop using STUFF to make you feel better….stop procrastinating on your future. If you can control your need for self-gratification you will get further. Focus on the object at hand.
You already know from completing the exercises above that adding up all the unnecessary expenses from the last 3 months gave you a *negative* return.
→THINK LONG TERM ←
“The things that you own, end up owning YOU.” (←View the Link)
Action #4: BUILD
Build. Build. Build. Grow yourself and your finances. Get in the gym. Learn and teach yourself about crypto. Start something on your own and grow your cashflow. Grow your portfolio. Just respect yourself enough to not work for someone else for 40 years and only come out with maybe a few million in the bank, or less.
Investments
We do not invest to make more money, we make more money so we can own more assets.
This is ONLY assuming that you have *at least* 6 months of expenses saved. If not, my advice is the following:
Participate and enroll in *any* employer based 401K match and match to that level of contributions.
Take the rest of your salary after the match and the rest of your benefits and save for the 6 month expenses fund and do this with haste.
Read this for educational purposes for future action.
Lastly, my opinion is that *any* person who is looking toward the future should put in serious consideration into “getting off zero” in terms of BTC and ETH. Getting off zero means owning some, as in not have a 0% allocation to the assets any longer. A good place to start would be converting $100 into BTC and $100 into ETH. Then, after you’re finished with the expenses fund, you will come up with an investment plan for these.
1. Primary Purpose
The objective of investing is to: grow your ownership of appreciating assets, grow wealth, and preserve wealth. To do this intelligently you want to consider your: Time Horizon, Allocation Strategy, and Risk Tolerance. These all go hand in hand with one another.
Your time horizon involves your age, your long term and short term plans, your level of income, and other life choices.
How old are you now? If you are in your 20s and 30s you can be more aggressive and work harder than you can when you are in your 40s and 50s. Be smart, don’t wait, think long term.
If you want to work at a company for your entire career, when do you want to retire? Do you want to have kids? You need to decide on an actionable and well thought out plan on what you are going do with your money as you go through life.
Your time horizon has “milestones”. → “When I am *this* age I want to have X amount of wealth, and my plan is to to be making X amount of money annually by that time with online business A and B. (You are NOT working for someone else your whole life).
Your allocation strategy determines what you’re investing in, and the percentage of money you’re going to distribute to each asset class.
For me, I am allocating an X percentage of my current income into BTC, ETH, and other cryptocurrencies I have done research on and find to be smart assets to own. I am also participating in an employer based 401K match and contribute enough to match their contribution. For my traditional investments, I invest in stocks. I like to invest in particular index funds like the QQQ and SPY, then I allocate a certain percentage of income into tech stocks and healthcare stocks.
Risk Tolerance speaks toward what you want to invest in and how risky you want to be with your money. This does not mean I am encouraging you to begin gambling on “sports-ball games” or, on the opposite side, only own TRASH bonds. You need to decide on what you know, what is smart, what is going to play out well long term. So, plan on doing research and *think for yourself*.
Bringing it all Together: All of this supports why I have invested in the things I am investing in. I am seeing a long term dematerialization of business, goods, and services.
That is why I own: 1. Large Cap Crypto Assets (BTC, ETH, LINK) 2. Small Cap Crypto Assets (will cover more on this later) 2. Tech Stocks, 3. Healthcare Stocks, and 4. Index Funds.
More Importantly, at my age I am aggressively trying to grow my income → I am building capital to grow online businesses of mine. Again, this is the most important.
2. Enemies
Your enemies of your investing journey are going to be a small number of massive pains regarding your investment decisions:
- Taxes
- Fees
- Inflation
Inflation, as we all know, is a major enemy. It is a silent tax. This enemy involves your investing decisions because you do not want not be priced out of your day to day expenses to the point that you have to stop purchasing assets.
This is why growing your cash flow is going to be necessary. The assets you want to buy are rising in price, if you’re not growing your cash flow your not going to be able to keep up.
“Money Flows to the Top”. This means that we see the money goes to the owners of businesses, large shareholders, and the wealthy. This has been clearly evident since 2008 as the money supply expansion has had a direct effect on stock prices.
Taxes. We all despise taxes, but you are going to pay them. Income taxes, capital gains taxes, sales taxes, inheritance taxes, they all hurt us in the long run but you want to pay them and keep them down as much as possible.
Below is a chart of the 2021 Capital Gains Taxes.
If you hold an investment for less than a year, it will be subject to short-term capital gains, which equates to your placement in your income tax bracket as it is taxed as regular income. If you hold it for more than a year you’ll pay the long term capital gains tax, which is much more favorable and is also attributed to your tax bracket.
2021 Federal Income Tax Brackets
Navigating taxes in investing is very crucial. For your traditional investments it is important to familiarize yourself with “tax deferred” investment accounts (Traditional IRA & 401K) where you are provided an upfront tax break, and “tax exempt” investment accounts (Roth IRA & Roth 401K) that provide tax breaks on retirement withdraws as you pay taxes on your contributions. Furthermore, your considerations between ETF’s and actively managed funds should also be taken into consideration.
The *main point* here is look at the income tax bracket and the capital gains tax bracket. Once you begin clearing $100K/year at your job you’re already paying more in taxes at your job than you are in long-term capital gains. This is why a job is not the ideal situation for the long term. Income taxes are larger than long-term capital gains.
Now, for your business (where you’ll make the most money) the taxes there are interesting too. Small businesses can reduce taxable income by taking advantage of tax deductions. Businesses can deduct ordinary and necessary costs of running the business → advertising, salaries and wages, interest expense and insurance.
Fees: You do not want to spend unnecessary fees on your investments. Kent at XYZ Investments is not your friend and is selling you on the XYZ Tech Fund. Keep the fees down as much as possible. Explore ETF’s instead of mutual funds, and do research on platforms that meet your needs that provide low, preferably *zero* fees for your equity purchases.
Crypto Investments (Step 1)
This is for anyone who is curious about where to start and what to do about “getting off zero”.
Action 1: You want to own these *yourself*. You are going to “own the keys to your coins”. The first step is to purchase a Ledger or a Trezor wallet. For personal security reasons have these wallets intelligently placed in a secure location. Just like you would have anything sensitive or important organized in secure spots.
Action 2: You are going to include the purchases of these crypto assets in your overall investment strategy. I would recommend purchasing BTC, ETH, and LINK on a regular basis (dollar cost averaging). Until you have a decent amount just focus on stacking these coins and storing them in your wallet
Action 3: You’re going to begin purchasing, we’re playing the long game here. Purchases from any “exchange” like Coinbase, Coinbase Pro, Binance, Kraken, OkCoin, and such. The first “threshold” is getting off zero, will start here by purchasing some BTC and ETH to start.
First, I want you to work on amassing your portfolio to 0.5BTC and 2.5 ETH to start. After you reach that level of ownership I would begin purchasing LINK. These are the “Big 3”. Anyone that tries to shill you ADA, DOGE, SHIB, and other crap do not understand what they are talking about.
Action 4: After purchasing *any* of these assets you will transfer them to your wallet and store.
Action 5: Repeat 2 - 4. We are in a very good position right now. Everyone is beginning to see the true value in owning these assets. Do not slow down and always know that it is the long game.
Friends of Investing
These all, also like the enemies, go hand in hand.
- Time
- Compound Interest
- Diversification
Compound Interest: To use as an example, play around with this compound interest calculator. Starting with your current balances, and your DCA schedule, how long would it take for you to become a USD millionaire?
If you started with $10K, contributed $800/month ($200/wk) it would take 25 YEARS at a 10% annual compounded return.
How much earlier could that happen if you’d expand your income in your job, start an online business and get that producing monthly cash flows for you? Thus giving you the ability to purchase accretive assets (crypto and equities) more often and at larger purchases. (Then eventually leaving the job after your business is producing 2X your job).
Time: The three “friends” of investing have one thing in common with my example → start earlier and you’ll be happier. You don’t want to wait around any longer to start. You should be acting with haste to get these things moving quickly and as soon as possible.
Diversification: You don’t want to only have exposure to one single thing. Only owning the S&P 500 is not going to get you what you want out of this life. Not only that, you only have exposure to American equities, no crypto holdings, etc.
You want to do research and learn about businesses rising that have incredible products coming out that are going to improve lives. Could you imagine not owning any direct shares of AAPL or AMZN! What about not owning any BTC, ETH, or LINK! Think for yourself!
Learn about Web 3 and what that is going to bring, I may or may not have an article coming out soon that involves a special collaboration.
Thank you so much for reading, I appreciate you all and I am really looking forward to next week’s article.
Subscribe to my new substack CBDC Watch. First article has already been released.
Disclosure: None of this is legal or financial advice. Opinion’s are my own.
If one is regularly purchasing small amounts of BTC/ETH would there be an advantage to moving them off exchange less periodically in order to minimize gas and transaction fees in the future? Is there a future cost to having many small fractions divided all over the chains vs. fewer fractions?