4 things I’ve learnt about bitcoin

It’s a bitcoin bonanza! The world (from the news stories and articles that pop up in my radar) seems to be slightly obsessed with this cryptocurrency. I did some research to discover more about it and pulled together 4 slightly unusual bitcoin facts.

 

  1. Bitcoin is becoming more accessible: bitcoin futures 

    Being a new currency, bitcoin is currently quite difficult to invest in. You need to go through a couple of different websites to actually buy it, move currency from an online wallet to a “physical” wallet (for which if you loose the key, the money can never be accessed!), and platforms are still quite unstable.

    Bitcoin future contracts:”[O]blige a buyer to pay for something at an agreed-upon price at a certain date in the future. They can be used to make a bet on which way the market for a product is going to move. They can also be used to short a market, or bet that prices will fall.”

     Similar to a “buy now pay later” kind of thing. If you bet that the value of bitcoin will rise, you will get a lot of returns. Otherwise, if the value decreases, you don’t get your money back.


  2. What HODL means

    Originating from a bitcoin forum as a mistype, HODL means Hold On for Dear Life.

    Essentially, it is a long-term investing strategy of investing… and forgetting about it. This is how I use investing to live a rich life! Although bitcoin is currently moving a lot quicker than stocks and shares so it may be worth keeping an eye on.


  3. Cryptokitties

    … exist and are adorable!

    It is a game where users breed and trade digital cats using cryptocurrencies, like Bitcoin. According to TechCrunch, people have spent over $1 million on kitties…!

    In a really perceptive, and hilarious, YouTube video by Crypto Investor, he claims they “have been testing the limits of the Ethereum network”. By making it a more accessible route into cryptocurrency, platforms like Coinbase appeared to have a much higher sign-up rate than normal. After all, who would want to own one of these cute cats?!


  4. Is it an investment?

    Depending on your strategy, bitcoin can be used as a way to make money fast (if the markets are rising) or something to add to your investment pots. But use with caution – the value of cyrptocurrencies, especially bitcoin, really fluctuate.  This chart on bitcoin prices shows the highs and lows the market goes through, definitely not for the faint-hearted!

    I would recommend not putting money in cryptocurrencies that you can’t afford the lose. You may triple your investment, but you may also lose the whole thing. Let me know how you get on with this wild ride!

Judging Your Friends’ Money Habits

The lovely Nikki Ramskill gave me the wonderful opportunity of posting on her blog, The Female Money Doctor. Enjoy!

How many times have you caught yourself judging a friend on their spending patterns?

There’s a pretty high chance it’s happened in the past. Maybe you can’t understand why your friend spends over £200 a month on clothes, or your colleague who has three cars on finance.

I recently read an article that sparked my thinking about how we make assumptions about our friend, family, and partner’s spending habits. We all do it, thinking that they make bad money decisions while on the other hand, yours are great.

In all honesty, countless studies and anecdotes show that most people are bad with their money! For example, they may be trapped in a consumer debt cycle or in denials about their financial situation.

Judging your friends’ spending habits reduces the chance of you examining your own finances. This is because perceiving their habits as “bad” makes it easier for you to justify your financial decisions as you don’t, for example, spend over £200 a month on clothes.

But is there really any point judging others based on their finances?

Just as your friends most probably overspend on the things they see as necessary, you might be doing it too.

 

“She spent HOW MUCH on [insert high value item here]?!”

I get it, we all have something we are happy to spend lots of money on. For me, it is food and eating out in restaurants. For other people, it may be spending hundreds of pounds on a pair of Valentino heels.

What may seem normal spending to you may be completely abnormal for someone else.

For instance, it seems to be “normal” to buy a house to live in, but buying a house as an investment? This is a decision that is often judged as the person is perceived as someone who has loads of money to “throw away” – especially with all the negative news coverage around high housing prices.

There are always people who will criticise your spending decisions. Take, for example, comments on Reddit about making big purchases:

I am in the financial position to buy them, but i [sic] just dont [sic] want to be Roasted for buying them. My friends and family are not Too keen on buying expensive stuff. (Brumbass02)

I laughed pretty hard at my brother a few years ago when he proudly presented me his exeptionally [sic] ugly new scarf from whatever expensive brand, on which he spent 160€. Onehundredandsixty Euros! on a […] ugly scarf! it was just a brown and orange piece of ordinary cloth with a name on it. I bet that, somewhere in the world, you can buy the exact same thing just without the name on it for 5€. (TheoriginalTonio)

You can find these types of people critiquing each other’s spending habits everywhere!

It seems to be their mission to highlight how that person is making a huge mistake spending X amount on a purchase as they think they would never be so “stupid” to do that. In fact, they may be doing just that. Instead, they are justifying the purchase in their mind.

Maybe they felt that they earned it after a busy week at work. Maybe they default into spending lots of money when life gets tough. Maybe they just wanted some new stuff.

“Everyone finds justification for his or her views in logic and analysis.” – George Packer

 

Why we judge our friend’s spending habits

We unconsciously project our values and cultural background onto our friends. These come from past experiences where we have ‘learnt’ that for us, this is normal.

One of my good friends comes from an incredibly thrifty background. She is incredibly money conscious and plans her spending down to the last detail. It is also an uncomfortable feeling for her to make any big purchases. Because of this, she finds it difficult to understand how this is normal for others.

When we judge, we do it emotionally rather than rationally. Take for instance a friend of yours spending a large amount of money on something you wouldn’t spend it on, like eating at the most expensive restaurant in the city. Instead of basing our reaction on analysing the amount of wealth in their life, debt levels, spending habits, then making a judgement; we usually automatically respond with disbelief.

And while responding this way to other people’s spending patterns, we are constantly justifying our own.

Five years ago, I was saying to my friends and family that I would never “waste” money on a car. “It’s losing money every time you drive it, I’d much rather go with public transport” I would happily chatter. Fast forward three years and I bought my first car.

I felt I had to justify it to myself: it’s much easier to go and visit family (the main reason), and I love having the independence.

For me, it is completely worth it and my finances have worked around it. However, someone in a different financial position may judge me because cars are expensive to run and maintain, becoming a liability.

 

Next time you go to judge your friend’s newest expensive purchase, ask yourself…

  • How much money do they have to spend after their necessities and savings?
  • What do they happily choose to spend on?
  • How long will the purchase last?
  • Are my finances in the best state they can be? How can I earn more money? How can I be better with my spending?

By going beyond the knee-jerk reaction, it becomes easier to reduce the chance of being judgemental. When making quick assumptions and judgements, we miss out on the chance to learn more about the context behind the decision.

This is something I’ve been working on recently. I find it helps to remember that everyone’s situation is very different and their money biases may be completely different to mine. Besides, I could spend that thinking energy on much better things!

Do you catch yourself judging people based on their spending?

What purchases do you find yourself being the most judgemental of?

Tracking Your Money

We manage what we measure

Tracking money is such a great habit to get into. You have an overview of what’s happening with your spending and see where it is going.

Personally, I track my money every month. Some people I know do it weekly (usually on a Sunday) but I like to get the monthly overview. I still check my bank balances and statements usually every day to ensure all is well!

If you’re at a lost at how to track your finances, I wrote a handy post about it here.

Key things to track

1) Net worth

Your net worth is:

Net worth is a snapshot of the value of what you own less what you owe. If you have a negative net worth, then you owe more than you have available to you. A positive net worth means the value of what you own is greater than the amount that you owe. (Time)

 A really important element to focus on! It is the sum of all of your assets minus your liabilities, seen on your balance sheet (keep reading to find out more about these).

2) Making a profit every WEEk/month/year

As it says on the tin, you need to be tracking if you are making a profit every month. Celebrate if you do! It’s a huge achievement not everyone is able to have.

How do I track them?

There are two handy tools that you can use to track the key measures mentioned above.

 

1) Income statement (profit/loss)

This covers your income and expenditure. It is a snapshot of how money is flowing through your life. Creating it every month allows you to look what is happening with your money.

Think of your life as a business! You need to create a profit every month.

IncomeExpenditureRunning total
Active income:
£1,500
Food shop: £25£1,475
Rent: £600£875
Spotify: £9.99£866.01
New shoes: £12£854.01

… and so on.

2) Balance sheet

The tool to track your net worth is a balance sheet. This is where you subtract liabilities from your assets to determine your net worth.

Examples of assets

An asset is anything that causes wealth to flow into your life (in terms of net worth) either through income or by increasing in value.

  • Stocks and shares (equity)
  • Investment properties
    • Residential, commercial
  • Passive income businesses
  • You! (courses, self-development… ability to learn and create other assets)

Example of liabilities 

Liabilities are things that cause wealth to flow out of your life. Not all of them are wrong! Some of them bring you joy, like a car that allows you to visit family easily. They cost you future money in the form of repayments, often with interest on those monthly repayments.

  • Credit card debt
  • Student loans
  • Overdraft
  • Your home (some people would put this in the asset pot but your primary residence is not an asset because as long as you are living in it, it is not bringing in income)
  • Your car (my car is such a money drainer!) – car lease or loan
  • Anything you sign that you can’t get out of easily:
    • Mobile phone contract
    • Buying anything on credit

Ideally, your balance sheet should be growing  towards your target net worth number. How much do you want to be worth?

Depending on how much it changes, I would track it anywhere  between 1 month to a year. I usually adjust mine every couple of months because the changes I’m making at the moment aren’t massive.


Tracking both your net worth and making a profit means you can keep your eye on the figures. If they are not growing as quickly as possible, you are able to course correct to stay on track. Let me know how you get on! 🙂

The Ultimate Guide to Saving

Often it isn’t the mountains ahead that wear you out, it’s the little pebble in your shoe. — Muhammed Ali

This quote, which I found on Medium, has been in my head this week regarding my financial future. Sometimes I think it is easier to have a large unspecific goal (the “mountains ahead”) rather than sorting out all the things needed to get there (the “little pebble”).

The thing with having lots of little tasks to do is that they seem to take such a high amount of energy and effort. Yet without them, it’s harder for the bigger picture to fall into place. Saving is just one example of this, however once you have if figured out, it’s a breeze!

Sorting out your savings flow

Saving effortlessly is the best way to go. Saving anything is the way to start this! If you don’t have a savings account already, it is so easy to go and open one now. For anyone in the UK, saving accounts often come attached with current accounts and are free to use. US readers, Ramit Sethi has a great post about high-interest saving accounts.

I usually go by the rule of thumb of saving at least 20% of my income. A really easy way to work this out is remove the last digit of your paycheck and times what left by 2.

£1,300 becomes £130 x 2 = £260.

However, if at this point you are ready to leave because it is difficult to save £50 let alone 20% of your paycheck, the 1% challenge may be of help!

the 1% challenge

This comes from Paula Pant’s Afford Anything website (which I love!).  1% of your monthly income is removing the last 2 digits. So following on from the example previously, 1% of £1,300 becomes £13.

You can definitely find £13 a month to save. Without a doubt!

Set up a direct debit from the account your money comes into, over to the savings account you have set up.

Paula sets out the next steps here:

During Month #2, increase your savings by another one percent. In Month #3, add an additional one percent. Within a year, you’ll be saving an extra 12 percent of your paycheck.

Take the one percent challenge to save money next year

Taking the plunge from 0 to 12 percent overnight is tough. Taking baby steps — one percent per month — makes it much easier.

Grab your savings from the top

Once you’ve found out your target saving amount, pull it out of your paycheck first, then live off the rest. Because you saved first, you can enjoy all that is left guilt-free knowing you are focused on your financial future.

I also find it useful to try and get rid of all your big expenses around the same time and a couple of days after you get paid.

So for example:

  • £1,300 comes in on the 1st of the month
  • On the third of the month (give yourself a couple of days to allow for weekends etc):
    • Rent goes out
    • Bills go out
    • Direct debit to savings happens
      • If saving is something you are comfortable doing, the next step is to have separate savings accounts for different goals. You would have a couple of direct debits to the different accounts, for example: holiday, new clothes, Christmas.
    • Now you can live off the rest guilt-free knowing exactly how much you have left to spend on whatever makes you happy.

(Side note: I know that sometimes it isn’t as straightforward as all big bills going on on the same day, I get paid on the 21st but my rent goes on the 1st for example, so it’s just a case of working on the figures you have but bearing in mind that they may change in the month). 

Just get it done

All the actions I have mentioned in this post should take around half a day max to sort out. The key is scheduling in some time to actually complete them.

Every so often, I have “life admin” days where I catch up on things that have fallen by the wayside, from tracking my spending to sorting out bills. I find it really helpful to have a list written down at the beginning of the day of exactly what I need to finish, then work my way down it. However, that is just what works for me!

How do you structure your savings?