KISS: Keep It Simple, Stupid (Financial Security for Dummies)
Last week a guy I know at work wanted to buy some stock. He had never bought an individual stock before, so I explained to him how to open a trading account. His bank was the same as mine, so it made sense for him to open a trading account with them as I had done in the past. When he went to open the account though, they wanted an initial $3,000 investment.
When I had opened my account, I didn't need any up front investment. All I did was transfer $500 from my main bank account into the new trading one. At first I wasn't sure why the same bank would treat him differently than me, but then it dawned on me that his credit score might not be as high as mine.
When I asked him what his credit score was, he wouldn't answer me. His credit was probably horrible, and he didn't want to share it. The bank wouldn't allow him to open a trading account because he probably had a low balance and a low credit score. He couldn't purchase a stock at a great price because of bad past financial decisions.
As Jerry Maguire would plead, "Help me help you."
1. Get out of debt.
If you are in debt, pay it off first. The only debt I have is my mortgage, but even it is a huge drain on my wealth. I borrowed 195K at a fixed rate of 3.875% for 30 years. The banks love mortgages even when they are considered a "good deal" for the borrower as mine is. Run the numbers on my loan, and you'll understand why. By the time I pay my mortgage off, the total cost will be 330K!
That's a lot of profit for the bank. My rate is low too. Now consider the higher cost of a car loan. Finally, consider even worse rates for credit card debt. Do you see how powerful debt is now? It will keep you poor for your entire life, and that's the objective. How many people do you know who pay off one car only to get another? The banks love those people.
Don't be them. Pay off your debts, and don't take on any new ones.
2. Be the bank, not the borrower.
Many years ago I stumbled across lendingclub.com. I'm not there as a borrower either. For the last four years, I have been lending money to other people instead. Each note that I invest in is only $25, so my risk is spread out across hundreds of different borrowers.
If one borrower defaults, I only lose the $25 for a single note. As the banks understand though, most people pay their debts. Therefore, you can loan money even with occasional losses. You'll still make a profit over all. After all of these years and hundreds of loans, I'm still making 7% interest.
Lendingclub is not the only site that allows you to lend money. You can also use prosper.com. I use both sites at the same time to further hedge against losses. If one site is hacked or goes out of business, I will only lose one investment basket of many.
3. Before you become a bank, make your house into a warehouse.
No one should be investing extra money in peer-to-peer lending or anything else until they are well prepared. First, get out of debt, and then get prepared for winter storms, hurricanes, and other major regional problems. I'm not talking about preparing for nuclear war here either.
Work towards that if you wish, but start by preparing for the winter storm or hurricane. In my neighborhood for example, we have lost power for nine days in row before due to a winter storm. Make sure you can feed yourself and stay warm if something similar happens to you and your family.
In addition to stockpiling food, water, and supplies, everyone should also have a way of heating their home without the electrical grid. I use kerosene heaters, and I store 20 gallons of kerosene at all times. If I lose electrical power in the winter, I'll heat my home with the space heaters. Perhaps you have a wood fire place or stove to do the same.
Make sure you have the fuel needed for your heat source in advance.
4. Don't gamble with what you cannot afford to lose.
Recently I saw a famous person on here recommend maxing out credit cards to purchase crypto. We've all heard of the guy who mortgaged his home to buy Bitcoin as well.
Don't be foolish. Investing is, almost always, a gamble. The stocks, wealth management account, precious metals, and crypto I own are all gambling. I'm betting that they will be worth more than what I paid for them. Never let anyone convince you otherwise either about such things.
If you are maxing out credit cards, taking out a loan, or mortgaging your house to buy any investment, not just crypto, you are playing a very dangerous game. I'm not a financial adviser, but I do believe in financial security.
Do not risk yours on gambling.
U made so much sense. Nice work and i hope for more.
@joanaltres your account too? How many do you have?
How many what please?
As soon as you voted, an army of bots upvoted your reply. You have no idea how that happened, right? ;-)
Yesss.. I was suprised. Like 8 persons. How did that happen?
You're paying some kind of service like a booster, MSP, or some other? It isn't by accident. It was instant. That means you should know about it. You're the only one that benefits from it, right?
Yesss.. I was suprised. Like 8 persons. How did that happen?
In my father's time, and most certainly in my grandfather's time, everything you mention would have been simply classed as "common sense." Unfortunately, common sense is no longer common.
I went fishing, hunting, skinning rabbits etc. as a child with my grandfather. Also, everyone had a well stocked larder in their homes, and the means to defend same. People were mostly "self sufficient" and able to live off the land. We grew our own crops and vegetables. We milked our own goat.
Slowly, over my lifetime I have seen these skills and liberties eroded and forgotten in place of convenience and superstores and credit systems.
I was living in Cyprus in 2013 when the entire banking system collapsed, so I saw and experienced first hand what can happen to a first world economy.
Remember, Cyprus was a thriving country, the "back door" entry to Europe for many Russians and others; and a major international banking island
Within a few days of the banks closing their doors and the ATMs running out of money, people were back to bartering and IOU notes, if you could get them.
It was staggering how quickly society resembled a medieval model. I fear many, many people will be caught sleeping if they do not heed the warnings and advice in this type of post.
Like you say, no-one needs to go overboard. Just sensible precautions and backup systems in place.
I would like to also express my amazement at the resilience and restraint of the Cypriot community and people in the face of international isolation and their abandonment by both Europe and Russia. Although voices were raised in occasion in anger, there were no riots, and people helped each other as best they could.
Thank you for the wonderful and informative reply!
It is sad how much old knowledge has been lost. The economy isn't going to get better either. There's too much debt. I'm not sure what exactly will happen, but being able to fend for yourself is a good idea regardless.
The USA will not be Cyprus. There will be a lot of violence here. :(
This is excellent advice. Especially the last part regarding investing something you cannot lose. So many people want to max out credit cards for the next big thing. Why is it not okay to start small?
My Crypto portfolio is less than $300. And for me, that's an okay place to start. Will I add $25 here and there as we go and as something pulls my interest in to buy in a little more, sure. But if it all goes belly up, I haven't staked anything I can't afford to lose.
It's a lesson we all need to learn. Especially here in the states where we seem to be a country building on debt.
Thanks for sharing your thoughts! Much appreciated!
I am slowly building my crypto too. My initial investment was on Coinbase and only a couple hundred. Now I only have a few thousand, but that's after months and months of saving.
It has been very tempting to put things on credit cards though. For example, and there are comments to prove this, I "called the bottom" on Bitcoin Cash a while back. In other people's threads, I posted about it and wished I had money to buy some. That was when it went under $200. From what I understand, it reached over $900 this weekend. It was a no brainer to buy it, but I just didn't have the extra liquid cash to do it. :(
I'm not going to risk going into debt though to gamble on crypto. Who knows what could have happened. BCH could have failed horribly.
Yes, the USA is done. It's over here. There's no graceful recovery from the debt and obligations the US government has. I'm not sure exactly what will happen, but it is going to be a huge mess. At the least we are looking at a Greater Depression.
Nice post, very easy to understand. So many people seem to not know what to do with their money these days. As you say, just don't spend more than you can afford.
Greetings from a fellow voluntaryist! @rvanstel
It's sad really how many people live beyond their means. I challenge the people who say they cannot lower their expenses to ask me how too. There's always a way. Most people I know spend every penny and more than what they earn. Then they wonder why they are always broke. :(
Great advice. I love being debt free and I save about 75%+- of my income into savings & investments. Most of my friends (mostly millennials) back in the states are up to their ears in debt and don't know why.
I apologize for the slow replies here folks. I was without Internet today...
Yes, absolutely. Being in Panama with the low cost of living there certainly helps too. I despise being in debt and have been many times in my life.
Thanks for posting @finnian. Actually the banks have a big advantage in the lending game that beats you on lendingclub. Fractional reserve. 90% of the money they loan you for your mortgage is a ledger entry that they create out of thin air. So even if the bank did the same as you and invested in Lendingclub they would make 70%. But they settle for your mortgage instead and make a crappy 39%. Makes you wonder how banks ever go broke.
Yes, wouldn't it be nice if we could lend 10 times what we had and create deposits out of nothing?
fiat system is a joke
The joke's on us too.
never heard of lending club or prosper, I'll have to look into these options further, thanks for sharing @finnian
They have been great to me! I recommend them to my friends, and not even a single one has opened an account. /boggle It makes no sense to me, but I try not to think about it. haha
Great article and points. For the fourth section - In the US the credit card annual interest rates is something like 20% for a lot of people meaning if someone carries the balance, they have to triple the average stock market returns to break even!!!! I am only use credit cards for crypto because I get a little squeamish about linking up with bank account to a website.
Yes, I'm nervous about doing that too, and I don't like having my bank accounts linked to anything. It is a bit of another topic entirely, but I do not keep any more cash in the bank than necessary to pay monthly bills. The rest is converted into something that works for me.
Amen. We are currently out of debt and working on our down payment fund for a homestead. What you said in this article is or rather should be common sense. The only investing we are doing at the moment is husband's retirement, but I would love to be able to invest more in the future. We will focus on paying off our future mortgage first though and on having a well-stocked house before putting money into riskier things.
I am trying to find land in my county, but it has not been easy. Every place that comes up for sale has been clear cut, has a large power line through it, or has some other easement problem. It's definitely not easy finding good land if you are limited on where you can move! Where are you planning to build a homestead?
We aren't actually planning on building, buy buying something established. It's almost impossible to find raw/undeveloped land here, it's all owned by big farmers or the state and there a so many building codes that it would cost a fortune to build something we would want. So we are settling for a home on a couple of acres back on the island we both grew up on and will take it from there.