The Dangers of Having the Same Plan All Year — Budget Planning 2023
The most dangerous thing you could do to yourself is live month-to-month. Without a budget plan, you will fail in the crypto market AND in your financial journey. Yes, budget planning is simply tracking the money flowing in, your income, and the money flowing out, your expenses. This way you’ll find if your spendings will put you in debt or allow you to save some money.
But, to start your plan, you’ll have to do two things. You have to:
- Understand the market cycle and its effect on you and the world.
- Put an actual budget that you will stick to.
1. Market Cycle
Market cycle is divided into bull & bear markets. In bull markets, the economy is booming. Low-interest rates on borrowing. More companies are spending. More money in high-risk assets. Living standards start to rise, and borrowing occurs beyond the allowed limits.
Then the economy shrinks, so central banks increase inflation rates on borrowing. Growth slows down. Many lose their jobs due to the cuts on the costly expansion. Money flows out of gold, stocks, and digital currencies. Value of monetary currencies, e.g. the dollar, increases.
So if inflation is high, we lower our expenses & vice versa.
Having the same strategy every year is damaging — your budget should go around the market cycle.
Now comes the action.
2. Budget Plan
A budget plan consists of three things that you need to consider:
A) Inflow
B) Outflow
C) Goals
A) Inflow/Income could be:
- salary: fixed / variable
- passive: real estate investment / pension / stock shares
If the salary is variable then the amount should be calculated based on the lowest monthly income to not fall in debt.
B) Outflow/Expenses:
- Married? Children? pets?
- Health Condition
- Food
- Trasnportation/Gas/Car
- House maintenance & monthly bills
- Rent
C) Goals
Make sure that A & B balance out.
Inflation globally is higher than 8%, so one of your main priorities should be to survive. You should have a contingency plan — sum of money that will carry your expenses for at least 6 months in case you lose your job for any reason.
You could achieve that by lowering your expenses and saving the largest amount you can. Now is the time to cook at home and stop getting the latest phone or devices. You need to get through this crisis safely.
An Example
You earn $2k fixed income after taxes. You spend $1k on rent, $500 on basic necessities like food & drinks, & $500 on going out with friends & traveling. End of the month: $0
Now what are you going to do with this new insight?
You could cook all your meals at home & cut out bad habits like smoking & drinking. Bringing the $500 down to $300. Maybe now there are cheaper rents you could look for to save a little bit. Instead of $1k, you find a $700. In this economy, going out partying drains the wallet, so instead you could invite your friends over for a home party or a movie night. Your expenses now are about 1200, saving 800 every month!
Now, what to do with all that saved money?
You can keep it in the bank or at home if it’s equal to or less than $500. In a bear market, keeping a good amount of cash at home is better to protect yourself from bank runs.
Be mindful if it’s more than $500. Savings account with 5–8% APY interest is an okay idea. Some centralized exchanges, Binance/OkX, offer users that but do so with caution. (FTX)
Their advantage is flexibility. You could draw out your money any day, losing the interest of the day only.
On Binance, you can earn 6% annual interest on $1,000 in BUSD and $1,000 in USDT.
On OkX, you can get 10% annual interest on $2000 USDT and $2000 USDC. There are dollar interests on a bank’s saving account, but they’re lower than these % but less risky.
Bonus 1: If you live in a country whose currency is constantly weak against the dollar, buying expensive items in installments without interest could save you a lot of money.
Bonus 2: Always ensure you’re expanding your network, especially with those who work in the same field. It could help you find other jobs in case you lose yours.
Follow me on twitter @ Cryptowrit3r to learn more about financial literacy, and join me on my journey!
