Sean Ongley

Tag: Bitcoin

  • Know What You’re Worth

    Know What You’re Worth

    Self-knowledge is not only the intrinsic value of your existence, the spiritual powers and carnal qualities of your being, nor is it merely the sum of your productivity as a working human, it is also the superficial measurement of your net wealth.

    Not to elevate our finances to the highest value, but this analysis is one that can help guide you toward a life plan. To carry out a life plan will elevate your will power and imbue your life with purpose. This will lead to a greater good in your life, if you’re a good person.

    My financial writing is not meant for the wealthy. It is for the average person just beginning to get their boat afloat, if you like. I am myself just beginning to sail, and I am not wealthy.

    As soon as you embark on the journey of long term investing and retirement planning — no matter how old you are — it is good to have a sense of your net worth.

    There are probably lots of people who make more money than me who never bother with this. The structure of their finances are probably very similar to mine, so this spreadsheet would help them too.

    I bet there is an alarming number of medical doctors whose overall net worth is in the red.

    That prospect is simple. Say you’re a doctor. You’re 30 years old. You have a six-figure income, but you have $100K in medical school debt accruing interest, and you bought your first home adding $300K to your debt, again with massive interest charges. Assuming you lease your car (no debt), you’ll need home equity and investments valued above $400K to hedge against your great saddling debt.

    To look at the interest charges you’ll pay over the lifetime of a mortgage or student loan payment is frightening. Best to ignore it for now and focus on the idea of net worth in the event of liquidation.

    In terms of ratios, the person with no college, starting out at Walmart, in the short term will surpass the net worth of the doctor. The doctor is highly leveraged and carries liabilities out the gate in life.

    The 17-year old cashier could save at least 50% of their income at first and draw it down to 10% as they become independent, relieving the parents from the cost of hosting them. Out the gate, this worker has the opportunity to build their net worth in the green.

    If the cashier rises up to General Manager after ten years, they too can earn a six-figure income. If they learn how to invest their portfolio, they could end up living next door to the doctor in a cul-de-sac. Who gets there first is a tortoise versus hair scenario. The doctor will rapidly earn more money once they enter the workforce, but the entry level worker can build their wealth debt free.

    This is why everyone should plan their finances, not because it is a race or competition of some sort, just because anybody can elevate their situation with focus and planning. I am speaking from experience. I was raised poor and until age 34, I held myself down in poverty. I’m starting later than the doctor, I am low-income. With planning, I believe I will retire before age 60.

    Once every quarter, I go through all of my financial accounts and enter the balances into a spreadsheet. I am including it as a download here. It is a straight forward net worth analysis. Also notice that I have formulas in the cells. These are calculators. I did the work so you wouldn’t have to.

    There is a primary goal for this spreadsheet. It is to predict the maximum liquidity of all my assets, literally all of them, imagining a scenario where I want to reduce my debt to zero and unload my possessions down to a backpack full of cash and nothing but a change of clothes. This figure is my true net worth.

    When you see these celebrity and CEO net worth articles, most of them are highly overvalued. There is no way Elon Musk can cash out on his shares and retire with $100 billion in a duffle bag. It just is not that simple.

    It kind of leads to a gross misunderstanding of the term net worth. I call that gross worth. Net worth to me is simply my liquid assets minus the sum of liabilities. It is easier to figure than Musk’s money.

    In the process of building this spreadsheet, I decided to include net credit limit into the gross worth figure. If I started cash advancing my credit cards and pulling my balances as quickly as possible, what would be the maximum cash I could liquidate? For this, the spreadsheet adds up total available credit, cash on hand, investment accounts, inventory, and home equity.

    Inventory is important for understanding net worth. Considering the minimal time required to keep an inventory of your possessions, with model and serial numbers, I would say it’s worth it. You can even point that cell on the analysis to your inventory total so that it will update your net worth when you manage your inventory.

    By the time you go through your house, add up your car(s), furniture, computers, and devices, depending on how far you want to go with it, your cookware and knick knacks, with modest resale values associated, then you can track an ongoing inventory of your estate.

    The minus debt field simply deducts my credit card balances and all other debts from the gross, giving me the post-debt figure, which means I pay debts off but run my credit cards to the max to go off the grid. It’s a weird figure, it’s almost pointless, but I like it.

    Liquidity is the final figure for net worth in this spreadsheet. It is also the only realistic number. This time I leave the credit limit alone as if I’m cutting up my credit cards. I total up cash on hand, investments, inventory, home equity, and deduct all debts. This scenario would have the maximum cash I can stuff into a bag after selling all possessions, investments, while paying off all debts.

    The truth of your liquidity is still not revealed. There are costs every step of the way. If I sell my house, I’m out thousands in closing costs and fees. Some people still pay brokerage fees to sell their stocks. If you sell your inventory in a hurry, you probably will get a fraction of its top value. I bear all that in mind, but I don’t have a calculator for it.

    Finally, there is one more figure that I realized I should know and estimate for the sake of my parents. My parents will depend on me as they grow old, so I want to know how much they could potentially get from my estate if I suddenly passed, God forbid.

    I do not presently have kids, so I don’t have a serious life insurance policy. Mine is free through the credit union and it pays one grand, which amounts to a basic cremation process.

    The better news about this total, even though I don’t benefit, is that it adjusts for student loan forgiveness. The only person legally responsible for my students loans is myself. This is the case whether I’m single, or married with children. So long as I keep my credit ratio well below cash in the bank, and my other debts below my home equity, then there will be enough of my capital remaining for them to reinvest into their portfolio.

    Prepare for the worst, work toward the best.

    In addition to this template, I have sheets that reference investment balances to chart growth (or loss). I have a very simple sheet that I will update annually for 20 years to ensure I am meeting or exceeding my goals. If I exceed, then I should at that point own my property and inventory outright and be able to bring my monthly obligations down to negligible figures.

    My entire collection of sheets that work into the analysis and projections include a budget. I update this annually to estimate my income and factor in expected costs, everything from taxes to recreational drugs. 

    The whole jawn is a comprehensive tracking system that no third parties have access to. Don’t leave it up to corporations to provide your financial analysis. They use and sell your data. They might even mislead you. Learning this template will earn you the skill to track it all on paper if you want to.

    I have included three versions of the Net Worth Analysis template. It was built in Apple Numbers, exported to PDF and Excel. I replaced my figures with basic numbers and generic labels. You are meant to personalize it and refer to your accounts.

    It is simple, just start adding your bank accounts and what not into the fields and watch the numbers update. Many of the cells contain formulas. Drop a comment if you have any questions about it.

    Download the Spreadsheet

    PDF VERSION

    APPLE VERSION

    EXCEL VERSION

  • The Risky Business of Your First Investment

    The Risky Business of Your First Investment

    Once More With Feeling: Get it Together

    I cannot stress enough the importance of starting from where you are, and in my previous finance posts, I have approached that idea from the perspective of someone like myself, before I took those first steps. I am not writing a finance series for people that have money and experience already, this is for people like myself: Poor folks. There are lessons in here for anyone that has not invested yet, including people that already make good money.

    From Russian-crafts.com.

    You can start with five surplus dollars a month, like a kid with a piggy bank. That is step one. Whatever bit of money you can hoard, you have to start with that, then find ways to increase that amount. The piggy bank is okay for the first few hundred bucks, but matryoshka dolls more closely resemble the savings investment scheme that is a grown up strategy.

    Living the path from where you began

    Life is a game of risk management. Every action is a risk. Going out is a risk. Staying home is a risk. Driving is. Walking is. At any moment, you could be struck by lightning, stray gunfire, be caught in a structural collapse, be stricken with illness — everything can happen. The deal is, the better you manage your risks the more likely you are to avoid disaster. You cannot avoid every expense, you cannot avoid every disaster. Like anyone, I’ve been screwed many times.

    If you’re doing well with it, then you will be better prepared for economic downturns and more likely to keep your assets improving over the long run. If you just react to every situation in life without a game plan, you will not manage shit. You will sell all your stocks at a loss exactly when you should be buying stocks. You will buy a new car because you got a dollar raise at work. You will budget for life in a short-sighted kind of way.

    My viewpoint, well into my thirties, was that if I paid my rent and bills and I still had $100 and a paycheck coming, then I was solid. I happily spent 60% of my income on a downtown apartment. That apartment was a luxury for me, but it disabled me from saving money. In fact, I had to rent a cheap room to save money to get into that apartment in the first place.

    Your circumstances will rule over you forever, until you take ownership of them. Sometimes there are hard decisions to make, like giving up the apartment, leaving spongey people to dry (speaking from experience as a spongey person), leaving jobs that don’t pay you right, between this and that, and the other.

    Until you’re beyond wealthy, you will always be sacrificing luxuries and comforts, if you want money later. So long as you’re spending all your money now, or worse, credit cards, then you are assuring yourself that you will not have money later. Credit cards are a strategy to themselves, but I started with no credit card, so I’ll deal with credit and debt in a future piece.

    Most folks starting to save money have a short term objective. When you’re inexperienced, you’re saving up for something. If you’re serious, then it will be forever. You should have in mind something like buying a house, starting a business, or funding an investment, while remembering that saving is just going to be a part of your budget, for life.

    However much you earn and however much you expend, it is up to you to analyze what you can sacrifice to maximize your surplus income. Leverage your skills so that you can save money at home, earn extra money if necessary, or simply occupy your time so you aren’t just burning cash. Hobbies are proven to maintain health and youth, saving on bills. There are ways to turn hobbies into secondary income, and that is a very efficient strategy to building wealth.

    What Am I Saving For?

    Stocks and cryptocurrencies are moving fast right now, in these mid-pandemic market conditions. The stock market it behaving with certainty that the economy will reopen, and it hopes that the trifecta of stimulus (cheap oil, loans/grants, and UBI) will have bombastic short term results on quarterly profits, while accelerating innovations that will reduce corporate expenditures. 

    Most stock picks right now are still undervalued. Hundreds of solid companies are trading at 5-year lows right now, and I am talking about blue chip stocks, brands that will survive this, no problem. There are opportunities, like cannabis, that have actually performed well during the pandemic but were already suffering from a supply glut. Real estate stocks are down, many of them more than 75%, but these companies offer some of the most stable, high-dividend securities available, and are expected to bounce back.

    Cryptocurrencies are booming as bitcoin is approaching its halving event, in which the mining reward for BTC is cut by 50%. Trading now around $9,000, as demand is hot and supply is cut, its value should recover 2017 peaks and exceed them. Historically, the value quadruples or better in between halving periods, bubbles and bursts, but continues on a bullish trend after that. This is the built-in supply control limit. It simulates a gold mine with limited supply, the opposite of debt-driven fiat currencies.

    Here is an example of risk management. If you just got your stimulus check, and you put all $1,200 into BTC, then you have a fair chance of doubling it within summer, and quadrupling it within a year. In this plan, the first risk is that bitcoin could totally fail, so you lose most of your principle. Risk #2 is a happy one: Do you pull your money when it doubles, or do you keep it in and hope it quadruples? Let’s analyze this.

    The odds are that bitcoin will continue on its trajectory of exponential growth for years, maybe decades — as the whole supply takes at least a century to mine. That is the design of the technology. Major flaws expose it to failure: If public sentiment turns or the cryptography is broken, then it plummets to zero. 

    If you buy about one ounce of gold, currently trading around $1,500, then you might gain a few percentage points on that, year over year, but it will always be valuable, because it is a commodity. If the whole internet shuts down, your BTC is worthless, and the dollar might even fail, so gold will be everything. It is safer to put it in gold, but in the short term, it seems more likely to profit with bitcoin. 

    So how do you manage this risk? The safe bet is to spread it around. You can buy $600 in bitcoin, and $600 in gold. Even more safe would be to invest it four ways: Open an Individual Retirement Account (IRA), open a stock brokerage account, create a bitcoin wallet, and buy some gold coins. You almost can’t go wrong like this. You have two different, volatile investments to be aggressive with, and two passive investments in which you just wait and add to over the course of your life.

    The second risk is how to manage your profits as they come. If you’re trying to maximize your profit, you should wait until bitcoin quadruples before selling any of it. So here is another strategy. Again, it is about doing both. When BTC doubles, you can pull your principle investment of $1,200, put it in your IRA with a CD, let it grow for a lifetime. Keep your profit at play in BTC and it will probably double again. Or you can convert that into different cryptocurrencies, of which there are now hundreds. You have a cash farm going, basically, as you have bought the field at $1,200. All you do now is till it, and replant the seeds of the fruit.

    What if Saving Was Also Investing?

    When I really truly started saving money in 2017, it just sat in a savings account, earning credit union dividends — like $2 all year. If I had deposited most of it into an IRA then I could have taken a huge tax deduction that year, then rolled that figure back in. This is probably the safest way to save toward a house. The least risky, the most straight forward.

    Alternatively, I could have purchased blue chip stocks, like Ford, and taken their dividends. You see, a savings account is a storage of cash, while gold, stocks, and crypto are storages of value. If Ford goes up by 5% and pays dividends, that crushes any savings account by a long shot, but the timing on your sale has to be good. If you’re saving to buy property, timing is everything, and you don’t want to get hung up with market fluctuations.

    It is difficult to calculate, because it was growing gradually, then exploded in November and December — who knows when I would have sold it — but if I had stored my savings in Bitcoin, I think I could have tripled my savings. I was not experienced yet, so it’s all about hindsight and learning a lesson from it. Obviously the best performing asset of 2017 (Bitcoin) is where I should have put my money. I had contacts in the ecosystem by 2015 and really should have entered at that time, so I kick myself in the ass a little too much.

    Everything I have learned about trading, I have learned by risking small amounts, and running simulations. In fact, my first simulation was high school economics class. It was the “Roaring 90’s” back then, so I am not surprised that my stock picks were successful. Ever since, I had a fascination for economics, but eventually in 2016, I mocked up a portfolio at Google Finance. It is hard to understand why I did not begin trading until 2019.

    There are several digital mock portfolio platforms online, or do it like I did in high school: Look up the day ending quotes in the newspaper and produce a paper graph. Or you can make a spreadsheet on your computer, watch quotes on Bloomberg, and pretend to make sale/purchase orders. Produce a balance sheet and see if you are capable of turning a profit. Good news: You don’t have to calculate brokerage fees because they are no longer common for retail investors.

    If you have an extra hundred bucks, you can open a stock brokerage account and toss in some extra cash — some of them offer cryptocurrencies plus stocks. Suppose I throw $10 at Bitcoin and make $0.50 back, the steps I take are the same as if I played $10,000, to earn $500 back. By the time you have made a hundred low-risk trades, you’re ready to up your game. And if you don’t enjoy the game, don’t play it. Invest in another way.

    The main way to mitigate risk is to leverage expendable money. You pay your bills, you have at least a month’s savings above and beyond your immediate expenses. I recommend three months, but you manage your own plan. After that, you can play that money with no worries. It is not gambling, because you are purchasing shares in companies. Options are like gambling, but I won’t go there yet. Sometimes companies go belly up and your stocks fall to zero, sometimes they skyrocket. The portfolio balance needs to profit overall. But my primary rule is never to sell at a loss.

    We have discussed risk management, savings, entering stocks and cryptocurrencies, and some strategies toward that end. My next installment will detail how I work with my portfolio. I’ll discuss digging in, digging out, buying the dip, dividend stacking, fractional shares, day trading, and I’ll compare a few known platforms so that you can think about how and why to use brokerage services.

    If you want to start trading and to support me for writing these free blogs, then please join Robinhood with my activation link and we’ll both get a free stock.

  • Start From Where You Are

    Start From Where You Are

    Image of Newberry Road taken on my iPhone, January 2017.

    Nobody has an identical story. This applies to every human being and their finances. Even though we share a common system, currency, and world, your story is your own, so you have to start from where you are.

    It may be that you were born into a trust fund, or poverty, or somewhere in between. There are hardships for everyone in this life, in this world. You may find yourself wealthy one year and broke the next. Everyone has a different rock bottom. If you never had any money in your life — your parents were broke and you never built a steady career — then you might be in the best position to grow wealth.

    I am pretty much talking about myself in that last observation. I will share my story so that you understand how a low-income person can dig out of chronic poverty.

    My folks were cleaning service workers in Santa Barbara, California. They built a small business and started poking through to the middle class for the first time in their lives. Neither of them finished college. They both grew up in rural towns of the mid-west. My father’s parents always rented. My mother’s parents bought affordable property. One side gambled, the other side drank.

    To cut to the chase, my parents ended up selling the cleaning business, finding middle-class jobs, migrated the family to affordable Tucson, went bankrupt, and dug themselves back out of that, now retired and barely meeting costs.

    They were not drunks or gamblers — they lost extra money to other bad habits. They didn’t have enough financial sophistication to manage risk. It was tough on all of us. Look, they did better than their parents, but they instilled a poor understanding of finance. They are not totally to blame, it ought to be a major aspect of public education.

    It took until roughly age 35 for me to begin the journey of financial planning. All the years between age 18, when I first moved out of the parents house and began living on my own, I felt good about having $100 leftover at the end paying bills. I slowly ratcheted that up between about age 30 to 35, but I was not holding money, not investing, it would always cross back to zero and I’d have to get on the phone to fight overdraft fees far too often.

    There is one valuable discipline I learned in fifteen years of being a poor adult, starving artist rebel character: Austerity. I do not need much. Earning less than a thousand a month for years at a time will teach you how to live on less than a thousand a month. If you have not read Siddhartha by Herman Hesse, do it. You will understand.

    When you understand how the poverty mentality forces you to buy things with the only extra money you have, before you have even saved up an emergency fund, then you will cease to do this. You will prioritize much better. Knowing how to be poor is an amazing skill when you’re making yourself rich on a low income.

    My credit history comprised mostly of student loans. I had defaulted on them in 2010. I did not understand what had happened. I got my Associate’s Degree, then dropped out of University studies without buttoning up the loans. I was a punk. I thought nothing could touch me. I started changing my habits and attitude at this time, very slowly.

    First thing was first, I consolidated my loans in 2011 under the Income-Based Repayment (IBR) program. This is a fair deal — if you can call our regressive student finance system fair at all — because if I do not cross a reasonable figure considered excess income, I do not owe any payment on a monthly basis. If I continuously reapply for the program then all debt will be forgiven after twenty years. So far, in eight years, I have made all my payments on time. What is the payment? Zero dollars per month. There are drawbacks, but we’ll table that.

    In 2018, I began making overpayments to my student loans, to ramp up my credit score. The more payments you make, the more months in a row that your debt figure goes down, the more credit points you accrue. Also, you get a tax break for those overpayments. Because they are just paying down interest, you get to deduct that from your tax burden.

    January of 2017, I was living on a farm on the northern edge of Portland, Oregon, in discussion about a two-year live-in caretaker position there. I would be able to save money fast, the plan was to sock away capital and move to the east coast where property was cheap. Then, a massive snow storm came in, held ice for two weeks, and collapsed the road in a mudslide on the day of the big melt, literally splitting access between the two halves of the property straddling Newberry Road. The job was cancelled and I was asked to move. 

    My seasonal job at the soccer stadium was not restarting for months. The snow storm stopped my other travel-based income for two weeks. I had spent extra money over Christmas. I was flat broke. I moved into a basement room with my girlfriend, who was also broke, at her bosses’ house. Our lives were insane.

    By the end of the year, we were driving away from Portland with about $15K between us. In a world where people of our income bracket statistically speaking don’t have $400 to cover an emergency, where even fewer can maintain a 4-figure balance in their bank account, I would say we did an incredible job turning our situation around.

    I want to look at that year of my life in pinpoint detail, because I believe we could have had $15K each if we were only a bit more adept and considerate of the opportunities in front of us. Nonetheless, we pulled it off. We pulled ahead and neither of us have been down to $100 after bills since.

    Through 2018, I learned about how to buy a house and changed my life by moving to Philadelphia. Through 2019, I learned how to properly save money. The lessons I learned last year have serious implications on my failure to grow my savings toward buying a house in 2018.

    Anybody with as little savviness as I had then can learn from my mistakes and develop their assets immediately. One of the big boats in that equation might be sailing now: Bitcoin. Right now it is surging and I think by July, BTC will settle at a new resistance point far above the $20K high of 2017.

    Having told my story, I want to get into the financial weeds next time I post. I want to show how great our financial opportunities are compared to our parents, even in an economy that is garbage.

    Until then, good luck, talk to you later.