Many people, especially in big cities, complain about the rising costs of goods and services that aren’t reflected by a proportional salary increase. It is difficult to save money, but not impossible. The old adage ‘you need to spend money to make money’ is used for a reason. A sound investment at the right time may allow you to go on that trip you’ve been struggling to save for, or to put down a deposit on a nice flat. If you have some spare cash, don’t let it lie dormant, make it work for you. While there are many types of investments out there, the one that has democratised wealth among young people and those without a formal financial background has been cryptocurrency.
In this article we’ll be highlighting why it’s a good time to get into crypto, as well as some basic finance tips that can be used in cryptocurrency investment, or in any other financial context.
Personal Finance and Cryptocurrency Trading
In our other articles, we have covered why cryptocurrencies and chief among them Bitcoin can represent an attractive investment at this point in time. We have also showcased our fully regulated exchange, bitFlyer, which allows users to trade freely with some of the lowest fees in the game, extremely advanced security, and detailed tutorials for beginners on how to read the market in order to buy and sell effectively. Before we get onto the broader financial advice, let’s iterate the main reasons why you should consider investing in Bitcoin.
- When looking at stocks vs. Bitcoin, even before the rapid growth in value seen in 2017 - 2018, Bitcoin was achieving better year on year returns than FANG stocks (major technology companies Facebook, Amazon, Netflix, Google).
- Bitcoin trading fees are lower than for traditional currencies or stocks. Most cryptocurrency exchanges charge under 2% per transaction, with bitFlyer the fee is just 0.15%. What’s more transactions are executed almost instantly, eliminating the risk of a significant price change while the purchase is underway.
- Everyday the options for when and where you can use crypto is expanding. If regularly conduct business or are a frequent traveller, you will know that exorbitant bank fees, commission or conversion fees taken by exchange places/ currency cards can cause you to forfeit a sizeable chunk of money. Cryptocurrencies can be sent anywhere in the world, including hard to access markets, and with a plethora of wallets to choose from, can be used to pay at points of sale worldwide, with much smaller than fees than traditional financial institutions charge.
- No one else controls your asset. Decentralisation is one of the core concepts associated with cryptocurrencies. There is no hackable central repository that holds your currency or information, meaning firstly extra security, but also the freedom to do with your investment as you please, regardless of your time or location.
Basic Personal Finance Tips for Cryptocurrency Trading
Effective Saving
For all intents and purposes, the rules that govern cryptocurrency investment are the same as the ones that apply to any other more “traditional” investment asset. In the next article in this series we will get onto more complex investing principles, but here we need to start at the beginning. To invest of course we need to actually have some money saved. As bills, rent and other expenses pile up, the seemingly simple skill of putting away some money at the end of every week can become a very difficult task. Unfortunately the problem seems to be getting worse, with finder.com reporting that in 2018, the average UK debt per adult was £30,386 ($39,288). Whether you are someone that is trying to get out of the red, or would just like to learn how to save more effectively, here are some of our top tips:
1) Review Your Spending Habits
Some sources recommend taking an annual finance “pulse” to determine your earnings versus expenditure. Others suggest a personal finance app where you can look at your spending habits from day to day. Both ways are great at giving you a micro and macro snapshot of your finances. While a personal finance app can help you monitor your daily expenses, it is harder to see where some of the bigger one of purchases, such as a new washing machine can fit in. Furthermore, if you work in one of the growing number of precarious freelance type jobs, it may be hard judging daily expenses against an inconsistent stream of incoming funds. Reviewing your spending habits can help you see just how much money you spend on small superfluous items (we all do it) that can add up over time. Simply the act of recording a purchase, possibly pushing us over a self imposed spend limit can cause us to be more reflective on what our important purchases are, and where we can start to save.
2) Consider an All Cash Diet
You may feel like you’re going against the grain as the use of cash in our society is becoming rarer and rarer. While tapping with a card or paying with your mobile can be more convenient, the psychological effect of handing over physical money is still a strong one. The science tells us that paying with cash is more painful than paying with credit cards, with statistics showing that in some instances people are willing to spend a whopping 83% more when using a card for purchases! Do not overestimate the effect that physical cash can have and give it a go if you’re looking to cut spending.
3) Bite Size Money Goals
The further a goal is away, the more unlikely we think it will be and therefore we give up. This is true for anything, especially for goals that can take years to achieve, such as proficiently learning a language. Even if we have a larger goal that we wish to save for, such as buying a house, it should be broken up into smaller milestones that give you a sense of achievement, thus continuing the motivation needed to reach your long goal. The BBC recommends the SMART method of goal setting:
- Specific – be as clear as you can be regarding what outcome you wish to achieve
- Measurable – evaluate what you want to achieve against a realistic standard, or your own performance in the past
- Achievable – not too hard but not too easy, finding this “comfortably challenging” benchmark is key
- Recorded – log what are doing or what you have achieved
- Timed – have a clear date in your mind when the goal (and smaller steps) should be reached
On a side note, saving does not mean foregoing everything that you enjoy spending money on. A modest saving regime rather than a spartan one can ensure you don’t feel guilty when spending some extra cash on a Friday night out. Don’t let a future goal completely suck the joy out of the day to day.
5) Have a No Spend Day
A no spend day is a bit of a misleading title. We are not advocating abstaining from all food and drink or not buying petrol for you car. Rather, the spirit of the no spend day is to only spend money on essentials. One day a week where you deprive yourself of your spending excesses can be a positive step for a couple of reasons. Firstly, it very clearly shows you what you can do without, with potential knock on effects seen throughout the rest of the days in your week. Secondly, your natural creativity may kick in, forcing you to find free alternatives to activities you routinely spend money on. Who knows, a new hobby might emerge!
6) The 50/20/30 Rule
This is a catchy one because it’s easy to remember and easy to follow. The 50/20/30 rule dictates where you should be putting your money. Here’s how it works:
- Essential Costs: 50%
These are costs like rent, mortgage payments, utilities, car payments, public transportation or groceries — anything that covers your basics, this includes loans. If you are spending no more than 50% of your take home-pay and are living more or less comfortably, you are doing well. - Financial Goals: 20%
It is in this category that you aim to build your nest egg. 20% of your income should go to your rainy day fund, servicing debt, future retirement, and any investments you wish to make. You will thank yourself down the track. - Lifestyle Costs: 30%
Remember that comment earlier about making the present worthwhile? Make sure you work to live and not live to work. 30% of your take home pay can be spent guilt free on things that make you happy, such as eating out, shopping, travelling, concerts and any other hobbies you might have. Go ahead and treat yourself!
7) Keep Savings out of your Checking Account
Think about a time you went on holiday and the amount of money you took with you. Chances are that even if you didn’t need to, you went close to spending all of it. The same is true with the money in your checking account. If you have more money in there, the more free you will be with your money. Keep enough in there for essentials and some leisure activities and put the rest in a savings account that accrues interest.
So there you have it, the golden rules of saving that should set you on the path to greater financial security. When you are feeling comfortable and want to start putting your money to work, bitFlyer will be there for you. Whether you’re a beginner or expert trader, bitFlyer guarantees the safety and usability needed to burnish your skills. If you’re just starting out, the next step is to learn all the fundamental terms required to navigate an exchange. Luckily, we have an article on this as well. In the next few articles we’ll be looking at how to invest in cryptocurrency, and then how to maximise this performance!
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