Change your habits to have a better future - why cryptocurrency investing can help
Everything you do in the present affects your future. Everything you did in the past is what got you here right now. Your choices, no matter how big or small, have an impact on who you are and who you will become. In this article I will show you that changing your habits can lead to a better future and why cryptocurrency investing can help.
The way in which people organise their financial affairs can go a long ways to shape the future. In fact I think you would acknowledge that we should be trying to save for the future. Looking at the statistics below makes for quite interesting reading.
There’s no “one size fits all” when it comes to saving money, but a survey conducted in the UK by Raisin highlight some interesting trends:
6.50% have absolutely no savings
25.95% have less than £1,000 in savings
The average savings balance is £9,633.30
Almost 1 in 5 of those aged 55 or over have less than £1,000 in saving
The typical UK household saves £180 per month
The typical UK household saves £2,160 per year
Only 12% of the UK population invested in the traditional stock market in 2018
The survey went so far as to suggest that the UK public over the age of 55 is not financially ready for retirement.
Imagine the path that a river wears into the surface of the earth. Each and every day the river flows following the same path. For the course of the river to change it would take a truly dramatic or catastrophic event. In much the same way, we become accustomed to how we spend and save. As time passes, it becomes increasingly difficult to alter a habit because that habit has become more and more natural.
The challenge of changing your spending habits is creating a “new normal.” That involves behavior change. People invariably try to change their behavior. One of the most common behavior changes people seek is that of dieting. If you’ve spent years and years eating the same way, it can be very difficult to change that pattern. That’s true even if you want to change, know you should, and even if you understand what the new pattern would be.
In the context of your finances an important part of the process of change is not simply understanding what you spend; it’s also vital to understand why you spend the way you do. It means not just spending some time working out a budget and recording your spending. It also means examining all the factors above to put your spending habits in context. You can’t change what you don’t understand.
Change something simple
According to a survey carried out by Research Without Borders (RWB) Britons spend more than £2,000 a year each in high street coffee shops, this is an incredible eight per cent of the average UK salary of £27,000!
The average number of visits to a coffee shop is 152 times - which equates to three times a week - with each trip costing £13.85.
Their total average spend in the shop was £8.52 but this was raked up to £13.85 because 78% said they spent £5.33 on transport to and from the shop!
I think you would agree that a spending habit such as buying fancy cups of coffee is not a necessity in life. In fact according to the coffee detective a cup of home brewed coffee costs as little as 20 pence ($0.27).
Now think about some of the other spending habits that you could changing in your life. What about cutting down on takeaways, alcohol, travel, etc.? How much do you think you would save each week, month, year?
I hope that you get the picture. If you want to make a change it is possible, you just have to be prepared to change your habits.
High inflation and low savings rates
So, you decide to make some changes to your spending habits but now you have to take a step back and give some consideration to the state of the global economy.
Inflation has rocketed to 3.2% in the UK, the highest figure in almost a decade, pushed up by higher food and restaurant prices. The upward trend is set to head even higher to 4.5% or maybe even 5% by Christmas.
If you are unfamiliar with the true ramifications of inflation then please take a look at my article on legalised theft, but suffice to say the paper money that you have is losing its value.
For example, based on an inflation rate of 3.5% per year, in 10 years time, the estimated value of £1000 in today's terms would be around £708.
Now consider what you are able to do with your hard earned money. To just keep pace with it losing value you have to find something that will give you a return of between 3% and 5% per year. This is definitely no easy feat for the average person.
The UK has not been somewhere that has really encouraged saving, this is because it has been in a very low interest rate environment for many years. This central bank driven policy has been put in place primarily because of a massive debt burden and it is portrayed as a way of protecting businesses and borrowers from high debt repayments. But this means savings rates are extremely low.
Paltry rates of interest
As a general guideline, if you had £1,000 on deposit in an average savings account and £1,000 in a fixed rate account over five years, with what is regarded as a competitive annual rate of 0.6% you would earn a whopping £30 in interest in total over five years – this is using a compound interest calculation where the interest is added to the account each year and you then earn interest on the full amount.
In contrast with a five-year fixed rate account at an annual interest rate of 1.5%, for example, you could an eye watering £78 in interest (compounded) after five years!!!
If you are able to change your spending habits and save, but you're reluctant to leave your money in a savings accounts effectively losing money due to theft, I mean inflation, you will probably want find something that is going to allow you to at least keep pace with what is being taken from you. So lets consider some options to put your money to work.
Stocks is a viable option to consider. However going forward you should definitely have your expectations tempered as it is highly unlikely that the market is going to give a repeat performance of 2020. In the U.S. the S&P 500 index was up more than 14% by Christmas. And that comes off the back of a 29% gain made in 2019. But both numbers are well above the historical average annual return.
If you invested $1000 in the S&P 500 at the beginning of 2000, you would have about $4,710.17 at the beginning of 2021, assuming you reinvested all dividends. This is a return on investment of 371.02%, or 7.41% per year.
This investment result beats inflation during this period for an inflation-adjusted return of about 193.25% cumulatively, or 5.09% per year. This equates to an inflation-adjusted amount of £2,932.48.
The equivalent index in the U.K. is the FTSE 100 and that has produced an average annual return of about 5.4% over the past 20 years or so. This doesn't factor in inflation during this period.
Given the fragilities in the global economy, the massive amounts of money printing and out of control levels of debt, no one can say for sure which way the stock market will head beyond 2021. Many are starting to view traditional financial markets today as a ‘bubble of everything’ with assets being extremely overvalued, unsustainable explosive price increases, frenzied issuance, and hysterically speculative investor behaviour. Anyone buying in to the U.S. markets today is effectively buying at the top of the market.
The United States' economy tends to be a bellwether for the rest of the world. With the trade deficit at an all-time high, a falling US dollar coupled with political instability across the globe, one could safely conclude that this may be one of the most uncertain economic times in history. That is why many have chosen to acquire precious metals such as gold or silver, as an option for wealth protection and preservation.
Gold is proven over hundreds of years to act as a long-term wealth store especially during times of deep crisis - the one which everyone else comes to in a bit of a panic.
Owning gold means you have no liability to anyone and similarly it means you have no counterparty risk. As such, it can play a fundamental role in an investment portfolio.
Gold is considered a safe investment. It is supposed to act as a safety net when markets are in decline since the price of gold doesn't typically move with market prices. Consequently, it can be considered somewhat of a risky investment as well, as history has shown that the price of gold does not always go up, particularly when markets are soaring. Investors typically turn to gold when there is fear in the market and they expect prices of stocks to go down.
Furthermore, gold shouldn't be regarded as an income-generating asset. Unlike stocks and bonds, the return on gold is based entirely on price appreciation. Moreover, an investment in gold carries unique costs. As it is a physical asset, it requires storage and insurance costs. Taking into consideration these factors, gold works best as part of a diversified portfolio, particularly when it is acting as a hedge against a falling stock market.
With that being said if you had bought and held gold over the last 20 years your investment would have given an nominal annual return of around 9.2% or an inflation adjusted annualized return of 6.77%
Many people literally switch off at the thought of investing in cryptocurrencies. This is invariably driven by both naivety and a lack of knowledge and understanding. However as I have written about previously technology is a one way street. and as much as you may hate me for saying this cryptocurrencies are simply not going away; the technology will only grow and in time it will permeate into many different areas of business, culture and finance. The network effect has begun; the more people that join that network, the more valuable the network becomes.
But what people fail to understand is the truly massive opportunity that has been presented to them.
Although cryptocurrency adoption is growing around the world it is at a point in time similar to the start of the internet in the early 90's, and we know what happened there.
As of 2021, it is estimated that the crypto users has grown close to 300 million worldwide. And over 18,000 businesses are already accepting cryptocurrency payments.
One of the biggest objections to investing in cryptocurrencies is that it is too volatile. Whilst this may be true, unfortunately too many people who invest in the space enter with the completely wrong approach. It is not a get rich quick scheme!!
Let's look at the annualised returns in the blue chip cryptocurrencies Bitcoin and Ethereum as they have been around the longest, they both have proven track records and they have the largest market share, meaning that they are arguably the least speculative of the cryptocurrency assets.
Even factoring in the volatility within the market since 2011 Bitcoin has achieved an annualised return of around 200%. Ethereum has outperformed that massively by increasing over 13,000% over the past 5 years.
This is at the conservative end of the cryptocurrency spectrum. Of course many cryptocurrency projects are extremely speculative, however with meticulous research it is possible to uncover hidden that can turn a few hundred pounds into millions in a matter of a few years.
If you don't have the stomach for the wild swings in the crypto market stable coins offer a good alternative. These are cryptocurrencies where the price is designed to be pegged to a cryptocurrency or fiat money. It is possible to lend these to reputable third-parties and achieve up to 14.5% APY.
Like any other investment, buying into cryptocurrency should be a result of educating yourself and spending time researching mixed with an honest assessment of what you can afford to use as seed money.
Always remember that if projected payoffs are significant, the involved risk is equally large as well. Remember that the number of people who actually understand the system are less than those who already invested here. Perform due diligence, and don’t be afraid to learn a whole lot more before you get involved.
Expensive coffee or a brighter future....it's your choice
Anyone can change their habits, but just like anything in life you've got to have the desire to make the change. Nothing that is worthwhile comes easy; if you want to get fit you have to do exercise regularly; if you want to lose weight you have to adjust your diet and if you want to have a brighter financial future you have to put in place an investment plan and stick to it.
So consider this, for the next 10 years you could continue your same spending habits (like buying expensive cups of coffee each week) without any change, or alternatively you could make a conscious effort to make changes by drinking coffee made at home and then with the money that you save put it to work.
Now I love crypto - I believe in the technology, and I see it having the biggest upside potential in such an uncertain world. So I will leave you with this:
By stopping buying expensive coffee from coffee shops you will save £2,000 per year or £20,000 over 10 years.
Invest the same amount each month (£150) in say Bitcoin
Let's be extremely conservative and assme that Bitcoin only achieves an annualised return of 75% per year over the next 10 years:
End Balance $883,708.12
Starting Amount $150.00
Total Contributions $18,000.00
Total Interest $865,558.12
Or perhaps you do extensive research on a particular alt coin project. You invest £250 in it as you are extremely confident that it will do well in the coming years.
It does extremely well and the price appreciates 10,000% or 100x:
End Balance £25,000
Starting Amount £250
Now lets consider a conservative investment of the same amount (£150 per month) in a low risk stable coin that returns 14.5% APY, but this time you will look to invest it for 20 years:
End Balance £211,988.00
Starting Amount £150.00
Total Contributions £36,000.00
Total Interest £175,838.00
As you can see the returns that are possible in crypto far surpass anything that the average person can access in the world of traditional finance. Life changing wealth is truly possible.
If you want to learn more about how you can get involved with cryptocurrency and invest the right way I am here to help you succeed.
Please check out my easy to follow courses, or alternatively if you have any questions please send me an email or drop a comment below.