The Really Simple Secret to Financial Security

The Really Simple Secret to Financial Security

Category : Life Tips , Success

photo credit: Michel Longmire @f7photo

Sometimes it seems like the whole money thing is a big mystery. It comes in one door and slips out the back door and we never see it again.  We think we are earning $$$ ( X amount) each month and then it suddenly seems that there is more month than money. The money didn’t wait until the end of the month to disappear. And on and on it goes month after month like a revolving door.

So we say to ourselves “If only I made $$$$  (more than X amount) each month. Then my money troubles would be resolved. But, is that really true? Does it really depend on how much we make each month or year?

No, it doesn’t.  If you have bad money habits with a little money, you are going to have bad habits with a lot of money. The difference is that the crash hurts a lot more when you take a downswing with lots of money than if you lose with a smaller amount of money. The stakes are higher, the more money you make, but both scenarios can lead you into broke and even bankruptcy.

So, What’s the Secret?

The secret is Financial Literacy. It is understanding and applying the practice of giving yourself a security net so that when the gut shots come and when you get hit hard, you have a something to buffer you so that you don’t crash and burn. Think of the trapeze artists. When they practice and when they perform, they know that there is a net below to catch them when they fall. So, it’s basically the same idea.

Financial literacy is rare in our society. It is certainly was not taught in our schools (maybe it is now, I don’t know).  The banking industry does not stand to profit from a society that is financially literate; they need for people not to understand these basics. It is in their best interest for you to be their asset and your own liability. They depend on you to rack up interest payments on your credit card (s) for things you bought but didn’t have the money to pay for.

What Exactly Is Financial Literacy?

Basically, Financial literacy is having a complete understanding of money. It is the application of financial principles to give yourself a protection against financial hardships (like job loss, medical emergencies and other situations that dig into our money bag). Just ss book literacy is the key to opening up many opportunities, so financial literacy opens you up to a freedom from debt bondage.

What About Financial Security – What Is That?

Financial security describes a situation where even if you lost your main source of income for a significant amount of time (6 months to a year) or a medical emergency came along, it would not send you into a tailspin or a panic. It would not mean that your current lifestyle would change in any major way. It describes a situation where you have put measures in place to buffet these “forks in the road” and you have time to adjust.

Without Financial literacy and applying the principles of financial literacy, you are simply not going to be able to have financial security. You may have the “appearance” of doing okay, but the backstory of a debt lifestyle will catch up to you. Maybe you are thinking that it is normal to have debt. Everyone has debt, everyone has a mortgage (or two). Maybe you think that being able to live debt free is (1) unthinkable, (2) not normal and (3) not possible. But have you ever thought about where we got these ideas from in the first place?

A debt lifestyle has not always been an everyday reality. There was a time when people simply did not buy what they did not have the money for -they lived without. We are conditioned to think and live like this. It is ingrained in our society to have a microwave approach to living. Advertising has conditioned us to want “stuff” and get it now. We are conditioned to feel that we deserve what they are selling and to buy it immediately rather than wait until we have saved up for it or rationalized that we don’t actually need it.

Money Will Either Work For You or Against You

Ask yourself the question “Am I waking up poorer or richer each day?” The answer to this question will show you where you are with regards to Financial literacy. The principle of compounding is either working in your favor or it is working against you. For example, if you are accumulating credit card debt, this is an example of how compound interest is working in favor of the banking institution and against you. You may say “Oh but I have a retirement savings plan that pays me interest”  That may be true, but if the credit card interest you owe is higher than the interest you are getting in your plan, you are going backward.

If compound interest is still working against us evidenced by whether we are moving forward or backward financially, we have not yet mastered Financial literacy. You might be saying right now that, with your job and family situation, it is near impossible to get to that point. You might be saying that money is tight and you simply don’t have it (the time is not right). Well, the reality is there never, ever will be a good time. Time does not wait for us to decide or to act. There is a saying that says:

When is the best time to plant a tree? 20 years ago. When is the next best time to plant a tree? Right now!

If you want results, if you want to improve your money situation, if you are just starting out in life or if you are advanced in life:

(1) Begin as soon as possible.

(2) Stick to it, don’t give up and let time work for you.

(3) Be careful who you give your money to. Evaluate fees and services.

Ok, So Where Do I Start?

Sit down and determine what you can do without each month. Be ruthless, but don’t put yourself in the street (so to speak). Where is money being spent wastefully? Are there any habits you could change that could bring down costs? Groceries are a big-ticket – could you adopt a once a month shopping excursion and bi-monthly cooking plan? Could you thrift shop for clothes or just find new ways to wear the ones you have? There are many ways to cut back.

photo credit: Jonathan Brinkhorst @jbrinkhorsr

Do you track your spending? Do you know down to the penny (yes, I said “down to the penny“) how much money is going out of the household each week or each month?  Do you keep a ledger to track this spending and do you compare your spending from month to month?  Like I said, getting back on track with your finances requires being ruthless. It requires separating the necessary from the non-necessary.

Do you know how much money is coming in? This is your net salary, not the before taxes salary. Do you make buying decisions based on the actual money coming in or based on what they say your (pre-taxes) salary is?  There is a financial principal which says that we should not spend more than what we receive (living within the limits of our takehome pay). Keep track of this as well. Know how much is coming in and track what is going out and the second should be less than the first.

Last Tip: Invest In Yourself!

One of the biggest “money mistakes’ that people make is that:

They spend when they should be saving and they save when they should be spending.

Your brain is a powerhouse of potential wealth. Investing in self-education (apart from traditional and conventional education) is the number one (bar none) that you can do to progressively increase your wealth. Investing in your mind through reading good books (ones that help you to think differently and encourage you to grow), listening to stimulating and empowering audios and getting around people who also desire to improve themselves is the very best way to put yourself on a new path of improvement all around: better career opportunities, promotions, better skills and improved personal and business relationships.

The Takeaway

Making money is not as complicated or as hard as people like to think it is. We have just made it seem complicated. The secret is simple (note: I did not say easy) and effective: follow principles and not emotions. That’s it! Learn to say no to yourself and others. Tune out the advertisers and their megaphones. It’s just nose anyway. Remember who the most important person is: You! Treat yourself as important and invest in yourself, but don’t buy any excuses from yourself.

Cheers to a new start!

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Diana Lynne’s passions are family, travel, self-improvement, pursuing a debt-free/financially free life. She also loves hanging out with family, friends and being with her dog Skye. Diana is a Quebec City girl. who loves living life.  You can connect with her through Livingandstuff.ca

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This blog post was inspired by:

Financial Fitness (The Offense,  Defense and Playing Field of Personal Finance), Chris Brady & Orrin Woodward, Obstacles press, 2014

This post does not propose to give any financial advice; It is meant for educational purposes only.

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How Not to Go Broke at Christmas

Category : Life Tips

photo credit: rawpixel@rawpixel

How can we have a Merry Christmas without breaking open the piggy bank? It’s tough, isn’t it?  Aside from buying gifts for our families and friends, there are gifts to give at the office parties and gifts to give at club parties. It never seems to end. Where do we draw the line?  Where and when do we say No?

The tradition of gift giving at this time of the year is so deeply ingrained. Of course, it is wonderful to give gifts to people, but somehow it has gotten way out of control to where we feel a sense of guilt and obligation to give gifts.  Many, as we know, find themselves overwhelmed with credit card debt simply from succumbing to the pressure of gift giving in excess.

Can this year be different? Can we start off on a new foot? Where do we begin?

Start With a Plan

If you don’t have a plan of action, the Christmas Season and the shopping malls will eat you alive and spit you out. Not having a plan means that the stores and family members will decide how much money you will be spending at Christmas and where you will be spending it. Not planning also means that your time will belong to others and your nerves may be shattered to pieces. Be kind to yourself at Christmas and have a strategy.

Plan your budget and plan your time. Both are important. Make a list and check it twice Side note: check who’s been naughty or nice (sorry, I had to put that in there). But seriously, you are in control of how much you are willing to spend, not the stores, not the Jones’s and not the children.  You are not a money tree and you don’t have to spend money that you do not have, especially on people you may only see once a year. You don’t have to buy everyone a gift out of a feeling of guilt or obligation.

Your time is even more valuable than your money.  Time can be used to create beautiful memories with family and friends. What people appreciate most is the time we spend with them.  Value your time and your sanity.  Ask yourself the question: “Do I really need to travel to shopping malls after work (and fight traffic) and wander around in the overheated, overcrowded, overdecorated shopping centers in quest of that elusive gift that they will “just love?”  All the time spent in these shopping centers could be better spent hanging out with family.

Shopping online is an option and so is thinking outside the box for Christmas gift ideas. Who says that gifts must come from the store? And who says that we have to carry on the annual pilgrimage to the shopping centers?  I like the Icelandic tradition of offering pajamas, books, and chocolate for Christmas. It is simple and cozy. Certainly, kids can do more with books than a Batmobile or a PlayStation.

And, speaking of Iceland, why not look into other cultures around the world to see what they do to celebrate this time of the year? We are not obligated to follow the North American Christmas Debt and Stress Plan. Are there traditions from other cultures that would resonate with you and be fun to try?

Don’t Go Overboard

You do not have to have a community of inflatable characters hiding your house and your home does not need to light up the neighborhood – all those lights will ring up the power bill and I am not sure they are so good for the environment either. You do not need to aspire to be Martha Stewart in your Christmas festivities with a perfectly decorated home and table. Trying to make the season the perfect “Christmas to Remember” will only leave you exhausted and out a whole lot of cash.

Let the Jones’s do their thing; you don’t need to compete with them at any level. Besides, the Jones’s are probably broke from all their spending and dreading their next credit card bill.  Christmas isn’t about having the best decorations, getting the newest electronic/digital gadget/toy or about buying for the sake of buying. We do not have to go on autopilot when it comes to Christmas spending.

Prioritize

What does the season mean to you and your loved ones?  How do you want to spend it and what do you want to focus on? The commercial jungle (advertising and stores) will try to tell us what we should be doing, what we need to buy and where we should buy it and why. They will tell us we can “have it now” and not pay until January. But we don’t need to listen to all their noise.

Why not look at creating memories and doing things together instead of gift giving? It is an interesting alternative and certainly better for the environment. Why not plan activities as gifts? The gift of time is precious.

Alternatively, we can offer vouchers for future service or activities. Maybe there is an activity that works better in the summer than in the winter and you can offer a voucher to do this activity ( such as a reserved camping weekend).

Prioritizing the environment is something to consider as well. in addition to saving money, time and our sanity, we can also be doing our part not to contribute to extra waste (packaging, transportation of merchandise and power usage).

But, If You Do Decide to Buy Gifts…

Budget.  Decide ahead of time how much you are willing to spend in total. Make a list of all those you are giving gifts to and divide the total $ by this number.

Respect your budget and keep track of spending. Keep the bills and keep a tally. Don’t be afraid to return items when you have overspent your budget. You decide and you are in control.

Factor in the extras such as wrapping paper, bags, and mailing costs, Other costs may include hosting and traveling costs.

Don’t shop last minute. Seriously, just don’t. You will end up spending more than you wanted to. You will be rushing around with frazzled nerves and probably end up buying something that may never be used.

Try not to buy on credit or open up a new credit account just for Christmas shopping. You will feel the crunch in January when the bills come around.

Don’t go dipping or double dipping into the emergency fund. Christmas shopping is not an emergency.

Keep all receipts and check return policies.

My Takeaway

The Christmas Season does not have to be hectic and energy draining. It does not have to involve draining our monetary resources and racking up credit card debt. With a bit of planning and honing in on our priorities, we can take a more reasonable approach to where we will give our time and our money. And then we can say “Merry Christmas and Peace to all” without a ball of anxiety in our chest and a lump in our throat.

Have a great day!

 

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Diana Lynne’s passions are family, travel, self-improvement, pursuing a debt-free/financially free life. She also loves hanging out with family, friends and being with her dog Skye. Diana is a Quebec City girl. who loves living life.  You can connect with her through Livingandstuff.ca

 

 

 

 

 

 

 

 

 

 

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Take Back the Money – Breaking the Cycle

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Category : Life Tips

What comes to mind when you think of the word money?  Do you think “I really could do with having more of it?” Do you think of all the bills needing to paid or the things you need to buy, such as groceries and gas for the car?  How often do you say “I just can’t afford it?” Does the word money trigger positive feelings or memories, or does it bring up images of lacking, even poverty?

The Money Thing

The “money thing” is a struggle for many. One of the main problems or factors is that most of us really didn’t get much of a financial education growing up. We didn’t learn the basic principles and probably learned by trial and error (hit and miss). Many of us grew up with a foggy and somewhat negative idea of what money is, what to do with it and how to keep it.

The reality is that money (getting it and keeping it) really has very little to do with luck and more to do with making good decisions. In fact, financial success does not really depend on how much you earn, but rather on how much you keep from what you earn. It comes down to knowing what to do and then consistently doing what you know you should do.

What Does Money Mean to You?

This is a very important question to ask yourself. We need to clarify for ourselves what exactly money should be used for. If we see it as a pass to do whatever we want indiscriminately, we will have a hard time keeping it. But if we see it as a tool (in the same way as a hammer or snow shovel) to use for things that are important (families, for example), then it will be easier to make decisions as to how to spend it.

Also, we need to need to think of how much time we put into generating money. How many hours, weeks, months do we give in exchange? Time is our most precious resource; it can not be renewed. Money, on the other hand, can always be renewed. Thinking about what money means also means thinking about the cost of time.

Where to Begin?

Everything worth doing begins with education. If we want to improve our current financial circumstances, the best way to start is to learn more about the basic principals. Getting the right information is the first step. Then acting on the information will bring about the changes you want to see. Information can only take you so far. It is not very helpful if it is not applied.

Who gets the first cut of your pay? Do the bill collectors get the first cut? If they do, it is time to change that. Ask yourself the questions “Am I worth being paid?” and “How much am I worth?” Don’t you think you should get the first cut off the top?  What if you took 10% off the top and paid yourself? Think of it this way- if you don’t take care of yourself first, you can not help others. And, you will have more problems keeping up with the other expenses. So, this is the crucial first step: pay yourself first always and consistently.

Have a Vision

It’s not all just about earning and saving money. What is your long-term vision? what are you working towards? Do you have dreams or goals? How much money do you need to accomplish these? What do you want to do with your money? Without a vision or goals, it will be so much easier for your money to just disappear over time on unimportant things. People who are successful with money have a plan.

Keep Track

One of the very basic financial principals is to live within your means. Not doing this will guarantee that you will struggle with money. To do this, you first need to know how much money is coming in (after taxes). The actual income (from all sources) is what is important. Then you need to know what is going out. List all expenses, and, this means all foreseeable expenses Include all payments. Basically, this is a budget.

Now, it is important to track all spending. Write everything down (every coffee you buy, every pack of gum). I like to have a plastic folder with pockets into which I put all bills and receipts for the month. I don’t keep them in my wallet or lying around on a table somewhere where I might lose them. So, in my folder, I have a projected spending column and an actual spending column. It is also helpful to use a budget application to keep track of spending. I use an app, which allows me to track spending and print out an overview of my monthly spending.

Tracking my expenses has been the number one action that has allowed me to have a visual of where my money is going and how much I am spending. I can make comparisons from month to month and really see where improvement needs to be made.

What is Your Relationship to Money?

We all have a relationship to our money of some sort. Some of us have a bittersweet relationship and some of us have a fear-based relationship – as in fear of never having enough. For some, money is a complete mystery; they have no idea how to get it, keep it or even how it works. For others, money controls their life – they are always thinking of bills that need to be paid and of how they are just getting by.

Some people have turned money into a monster and it causes anxiety, sleeplessness and basically overwhelms them to the point that they can not function. This can be damaging to their health and their relationships. Other people are so driven by money that all they can think about is how they can make more of it. For these people, success = more money and lots of it. Still, others find that money motivates them to higher achievement.

There are people who tend to tailor their ambitions and goals to how much money they have and not strive to reach other goals. It is a tendency o give up and just accept the current situation. On the other hand, there are the people who do just the opposite. These people make use of their money to contribute to some purpose greater than themselves and to reach their potential.

Some people view money as a way of achieving status or recognition. These people may use their money to pass on their “dominion” to future generations. And, finally, some people use money destructively to nourish addictions or stir up trouble.

One way or another, we all have or have had some kind of relationship with money that has gotten us where we are today.

The Takeaway

Money problems may appear overwhelming and it may be hard to imagine a time when we are able to gain some control. In many cases, we have not received the financial education that we need to get a proper handle on money and make it work for us rather than against us. But, just like getting on the health and physically fit path after a long period of inactivity, we can get on the path of becoming healthier in our finances. It’s all about what we think, what we know and what we do with what we know.

Have a great day!

 

Has this post been helpful to you? Let me know in a comment.

Please click and share below.

Diana Lynne’s passions are family, travel, self-improvement, pursuing a debt-free/financially free life. She also loves hanging out with family, friends and being with her dog Skye. Diana is a Quebec City girl. who loves living life.  You can connect with her through Livingandstuff.ca

This blog post was inspired by:

Financial Fitness (The Offense,  Defense and Playing Field of Personal Finance), Chris Brady & Orrin Woodward, Obstacles press, 2014

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Overcoming Money Problems

Category : Life Tips , Success

photo credit: Ehud Neuhaus @paramir

Money problems are probably the biggest complaint people have after health problems. Sometimes we are in so deep (with debt) that we figure there is no way out so we may as well live with it. We tell ourselves that it is a normal part of life, a necessary evil. After all, pretty much everyone we know has some kind of debt. We may think that there is no other option, no other way of doing things and meeting our bill payments.

What if I told you that there is a way out of the money problems? It is possible to regain control of our money situation and use it to our advantage. By changing the way we see money and it’s role and understanding that we can be in charge, we can turn our situation around.

There are three main reasons we get tripped up with money and never seem to have enough of it to pay our bills and climb our way out of debt:

Everything Around Us Offers Suggestions On How We Should Live

We almost can’t even get out of bed without someone, or something suggesting that we need this or that. We turn on the tv and we are bombarded with advertising telling us what exactly we can not live without. We go to the grocery store with a list and as soon as we get in, there are tables up front with items we had no idea we wanted and had no intention of buying, but there they are, staring at us defiantly, daring us to say no.

They know what they are doing, don’t they? Advertisers spend millions, sometimes, just trying to get into our mind with alluring visuals, hoping to manipulate the 4 billion neurons in our subconscious mind and get us to buy on impulse. Logically, we know we shouldn’t buy on impulse, but our senses tell a different story. The smells, the visuals, the context and even the season all play havoc on our sound mind.

The advertisements create desires to make us think that we need what they are selling. and we justify /rationalize our spending. Sometimes we can’t even logically explain why we spend. And further, we become desensitized to the advertising to where it becomes normal and expected.

And then, there is social conformity-a kind of social standard for how we should be living, usually measured by what the Jones’ have or how the Jones’ are living. Kids are phenomenal at picking up on what they “need” to have because “all my friends have it or are doing it.” And parents often get “suckered in” to this pressure if they are not careful. Basically, we all fall into this trap at some point.

The only winners in this game are those (usually, banks via credit cards) loaning us the money.

photo credit: rawpixel @rawpixel

Cheap Credit is Readily Available

It is so easy to get credit and collect credit cards like baseball cards (if you want).  What bank is not interested in cashing in on unpaid interest?  Of course, there are cultures where this is not the case and the people can not relate to the North American or European problem of debt. But, on the whole, it is incredibly easy to stack up debt to where you are literally drowning under credit card payments and other kinds of debt.

And, in a system where they can print money digitally, virtually out of thin air, -money that doesn’t even exist, it is easy to become upside down in one’s finances.  Anytime we agree to pay with the most valuable asset we have (our time) and lots of it, for something that a financial institution can pretty much rip out from under us in a split second (for example, a mortgaged home), we should probably exercise some caution.

The media convinces us that payments are easy and sometimes there is “no money down” or we can “pay next year.” It is that easy. We purchase on credit (cars, sofas, TVs- just about anything we want to have) because the offer is alluring. Just because it is possible, doesn’t mean we should. And the sad thing is, we actually don’t even own what we thought we bought – the bank does.

We buy things with money we haven’t earned yet to get something we shouldn’t buy with the money we don’t have.

Not only this, as we increase our credit, we increasingly lose control of our life, because our life becomes dictated by what we owe and not what we want to do.

Short-Term Thinking

Quite naturally, we have difficulty waiting. We have difficulting denying ourselves and denying gratification. Patience is generally not our strong point. So, when we add this to the constant advertising pushes to get us to buy, we get caught up in the now and fail to think of the long-term impact of our short-term decisions. Essentially, we buy in impulse.

But. what if we took a long view of things? What if we looked at what we want to accomplish in life – where we want to be financially, in our work or in our family relationships and dreams? When we keep a long-term focus front and center, we can ignore the impulses (the subliminal subconscious messaging) and make decisions more in line with our goals.

What future do you want and what decisions are you ready to make to bring that future into existence?

What is delayed gratification? Many believe it is just not buying what you want. But if you are not buying what you want because you don’t have the money, that is not delayed gratification. It really means making the decision not to buy, even if you have the money to do so because you are making a decision based on long-term thinking.

photo credit Jon Tyson @jontyson

Some Practical Applications

Of course, none of this suggesting that we need to be penny-pinching everything or recycling paper towel to save money. It simply means we can start to become aware of where our money is really going and take steps to cut back on spending that doesn’t contribute to our satisfaction or well being. It simply means cutting back on wasteful or unnecessary spending.

We can think about doing some long-term and preventative planning such as building a “what if” emergency fund to tide us over when things are rough.

Being in control of our money rather than letting it control us can bring great satisfaction. And, for each little victory, we can celebrate in small ways – each time we take a step toward regaining control of our financial situation. We may have to say “no” to ourselves more often at first, but eventually, we will be able to make the purchases we wanted.

What does long-term mean? Actually, long-term is not all that long and will come by very quickly. We may not have the advantage of those who begin good habits early, but we can all benefit from leveraging the power of compounding -getting money to work for us. We can start the snowball rolling in our favor by putting away money and using the power of compounding over time. Albert Einstein said:

Compound interest is the 8th wonder of the world.

We are all living, so we might as well try to live life debt-free, while we’re at it. Remember, it is not about being a miser or socking away money and never spending; it’s about being pursuing financial health. The thing is, most people are saddled with debt, so why not be the new one on the block who is not going down that path?

Conclusion:

Overcoming our financial difficulties is possible. We can be in control of our money situation and don’t have to be overwhelmed by financial troubles. As the saying goes, the best way to eat an elephant is one bite at a time and I believe the same is true for overcoming money troubles. Taking the steps to be in charge can be enormously rewarding. Thinking long-term, having goals, resisting the pressure to buy on impulse and learning to say no to ourselves can be important steps on the way to becoming financially healthy.

Disclaimer: This post is purely for educational purposes. It is not to endorse or facilitate any financial decisions. Before engaging in any financial transaction, you should always consult a professional advisor. I am not a financial advisor, nor a legal advisor. I do not offer financial or legal advice.

Have a great day!

 

Has this post been helpful to you?  Please leave a comment.

Click and share below if someone you know might enjoy this post.

Diana Lynne’s passions are family, travel, self-improvement, pursuing a debt-free/financially free life. She also loves hanging out with family, friends and being with her dog Skye. Diana is a Quebec City girl. who loves living life.  You can connect with her through Livingandstuff.ca

 

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What I Learned about Cryptocurrency (Bitcoin)

Category : Life Tips

photo credit: andrefrancois@silverhousehd

We have probably all heard of Bitcoin and know someone who knows someone who is into trading and buying cryptocurrency. But what is it exactly? How does it work? These are questions I wanted to explore and try to answer in order to understand it better. Hopefully, this information will give a clearer picture of what cryptocurrency is all about.

I do not claim to be an expert on this subject, nor do I intend for any of the following to be used as advice to buy or an endorsement of cryptocurrency.

So, What is Bitcoin?

Bitcoin is one of over 1,000  cryptocurrencies and the most popular and widely used of them all. It was launched officially in 2009 following the Wall Street Banking fiasco by Satoshi Nakamoto. It is unclear as to who Satoshi Nakamoto is or whether this name refers to one person or a group of people. The Bitcoin grew out of the frustration people had with the financial system: the mishandling of borrower’s money, exorbitant banking fees, distrust of the banking system and the sentiment of deception.

The idea was to create ” a new electronic cash system” that was “completely decentralized with no server or control of authority.”

So, cryptocurrency is a decentralized currency (independent from the financial system) which the owners are in control of entirely.  It is essentially an exchange of digital information that allows owners to transact (buy and sell) without the intermediary of a financial institution. The information flows from person to person in a network (through a file-sharing system). It does not follow the traditional rules and regulations of financial transactions. There is no collection of names, IDs or other personal information.

The first Bitcoin pioneers wanted to:

  • eliminate the “middleman”
  • eliminate interest fees
  • make transactions transparent
  • halt financial corruption
  • cut back on fees

photo credit: David Shares @davidshares

More Details Please

  • Cryptocurrency transactions are anonymous and irreversible. Once the transaction goes through, it can not be changed. No one knows the identity of either the buyer or the seller.
  • There is no physical location. Bitcoins are received through digital addresses and there is no connection to the buyer or the seller.
  • Transactions are fast and global. They happen within minutes anywhere in the world since it is a global network.
  • All transactions are secure, They are locked into a cryptography system and owners have one or more encryption keys to access their account to send or buy currency. It is virtually impossible to break into the code.
  • The system is independent. Anyone can download the software and install it. Once the account is set up, you are set to go and can begin buying and trading.
  • The supply of Bitcoin is highly controlled and limited. Only a small number of bitcoins come out every hour and there is a cap of 21 million Bitcoins. Presently, there are around 16 million in circulation.

Are they accepted as currency?

Currently, there are over 100,000 merchants and businesses that accept payment with cryptocurrency including big names such as Expedia, Microsoft, Dell and Overstock.com and the list is growing.  People pay for things like pizza, flowers, and gift cards with Bitcoins.

Ok, So how does it work?

Bitcoin and other cryptocurrencies are mined by miners. The mining process is a highly complex combination of algorithmic problem solving and record keeping. Volunteer users verify transactions within the network on computers. Each transaction is recorded in a ledger which is grouped with other transactions to form a block. These blocks (or groups of transactions) are then put into a blockchain, which is essentially a massive publicly accessible and permanent record of all transactions worldwide.

The existence and continuity of the blockchain is dependant on the miners to keep up their work of recording transactions, which will continue to grow indefinitely. Blockchains are created roughly every ten minutes. They are the only record and arbiter of all transactions and proof of ownership. The blockchain also serves as a payment processing system which is also facilitated by the miners.

In return for their dedication and work, the miners are rewarded with Bitcoins and they also receive transaction fees paid by buyers. Sellers who charge transaction fees typically get paid first over those who do not.

Each owner has a private (digital) key which confirms his digital identity and allows him to buy or sell Bitcoins. The key is called an encryption key. The keys must be kept very safely; if they are lost, it is impossible to access your account and if it is permanently lost, so is your Bitcoin currency – into virtual space.

Bitcoin exchanges (such as Coinbase, CEX, Coinmama or Kraken) allow owners to exchange (trade) Bitcoin units (Bitcoin can be broken down into subunits) for world currencies such as the dollar or the euro and for other cryptocurrencies. There are transaction fees for the exchange.

photo credit: Thought catalog @thoughtcatalogue

Where do you keep the Bitcoins?

Bitcoins are stored in digital wallets, either private or public wallets (in a public exchange or storage center).  Generally, the wallets are secure cloud storage locations with special owner ID information confirming ownership.

Where do you buy Bitcoins?

There are different ways you can acquire Bitcoin. One way is to set up an account with an exchange (such as the ones mentioned above) and then depositing fiat currency (dollar, euro) into your new virtual wallet. It is free and simple to set up an account – just like setting up a Paypal account. Then you are ready to begin buying and trading in cryptocurrencies. Another way to earn Bitcoins is to accept them as payment for goods or services. Owners cand lend out Bitcoins and earn interest on them. You can also earn bitcoins through trading.

What about the risks?

Since Bitcoin is a digital currency, there is always the risk of theft through hacking. The public exchanges (and wallets) are particularly vulnerable to theft through hacking. So, the possibility is there.

Bitcoin transactions are virtually untraceable, which means they are very secure, but at the same time they are also obscure. You can never know who you are buying your currency from, nor who is buying from you. If you have bought from scammers, there is very little recourse for you to recover your funds.

Being a relatively new and decentralized currency system, the rules and regulations governing cryptocurrency are a bit murky. It is a “legal grey area”. Some things to be wary of are:

  • stealing of private keys
  • wallet theft and vulnerability
  • Illegitimate or fraudulent exchanges
  • Vulnerability of exchanges

What is the takeaway?

Bitcoin and other cryptocurrencies are still in their infancy. There is a lot we know, but also a lot we do not know. There are obvious benefits. There are also risks. It could be argued that there are risks with traditional currency as well and money has been lost through mishandling and deception there too. The jury is still out on where it is going and the governing rules are still murky at best.

One thing I have gotten out of this is that common sense should always rule. For obvious reasons, you probably wouldn’t want to put the money you can’t afford to lose into any financial endeavor without first getting all the facts, if at all.

Disclaimer: This post is purely for educational purposes. It is not to endorse or facilitate any financial decisions. Before engaging in any financial transaction, you should always consult a professional advisor. I am not a financial advisor, nor a legal advisor. I do not offer financial or legal advice.

 

Have a great day!

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Diana Lynne’s passions are family, travel, self-improvement, pursuing a debt-free/financially free life. She also loves hanging out with family, friends and being with her dog Skye. Diana is a Quebec City girl. who loves living life.  You can connect with her through Livingandstuff.ca

 

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