Personal Finance during a Crisis: A Guide to Financial Freedom
Disclosure:This article is part of VBit Technologies’ “Money Bit” where we educate our clients on matters Financial Literacy.
“What are you most afraid of?”
Movie geeks may recall this quote from Coach Carter (2005), an inspirational biographical sports film. Timo Cruz, the player to whom Coach Carter always directed this question, finally came up with an answer:
“Our deepest fear is that we are powerful beyond measure.”
His answer was pretty surprising. Most of us would’ve answered something along the lines of- “my greatest fear is failing.”
But think about it. Timo stated an honest truth about human behavior. Most people simply never get to know what they are capable of.
Harnessing the human potential in all walks of life is the secret. Understanding the journey and what it takes is arguably more important than being fixated with a destination. With the right dedication and direction, pretty much anything is achievable in life.
Taking the same lessons to finance, great work ethic, preparation and knowledge can take you really far.
Tough Times Don’t Last, Tough People Do
The Covid-19 Pandemic has been the biggest shock to the global financial system in over a decade. Even though most governments have rolled out a range of stimulus measures to shore up their economies, the reality is that the world is in the middle of a recession right now.
Small businesses are particularly hard-hit by such times. They are not equipped to handle such disruptions and first to get into trouble. Even with the reopening, most businesses are operating at 30-70 percent of previous capacity.
To bring the point home, these are tough financial times. Usually, people with savings and reserves are able to capitalize on the massive sell-offs. During the 2008 financial crisis, investors like Billionaire titan Warren Buffet wiped the floor with their cash and timing.
You don’t have to be astronomically wealthy to achieve similar success. It is all about planning your finances and capitalizing when the moment is right.
But most people never do. The comfort in everyday life and routine makes adjustments seem like a bother. After all, a bird that has been caged its entire life thinks that flying is an illness.
The Coronavirus Pandemic will not be here forever. It may take months, or even years to recover but eventually, times will change.
In the meantime, you can equip yourself better to handle this crisis and possible future crises. The American economy is continually being divided into two classes; the rich and the rest.
Where you end up belonging is a choice you can make today.
Yes, every person has unique circumstances. However, the fundamental patterns in the journey to financial freedom have plenty of similarities.
Personal Finances during a Crisis
During normal times, managing finances is a struggle for most people. Personal finances become even trickier during times of actual crisis.
Yes, it is impossible to offer blanket advice that caters to everyone. People are at different levels of financial stability and these circumstances.
However, some general tips are useful to everyone during these dire times:
- Understand where your everyday job/ business stands– the recovery from this crisis may take months or years. Take time to analyze what the status of your source of income will be in the near future because it guides most other decisions. During the 2008 financial crisis, the American economy remained in recession until June 2009. The recovery this time could be faster but there will be casualties for sure.
- Select priorities carefully– if you have the luxury of primarily worrying about stock markets, you are better placed than most people. However, working-class individuals must prioritize their spending on useful things.
- Look for opportunities– Should the economy stutter further, the credit will continue to be cheap. The inevitable collapse in the price of certain asset classes results in opportunities for those with savings or credit access. Besides, it is important to know stable or potent asset classes during a prolonged crisis.
Take Advantage of Opportunities
Developing great financial habits requires analysis and knowledge. The modern economy is very competitive with the middle class shrinking in the United States over the past few decades. Income inequality is a political buzzword but it is unlikely that those politicians will do much about it when push comes to shove.
Instead, you can take steps to improve your financial prowess. The classic way to build wealth and rise up in society is to build a business and continue growing it.
Taking advantage of opportunities could be as simple as knowing provisions that many people simply don’t. For instance, the coronavirus stimulus legislation (CARES Act) has some pretty lucrative clauses for individuals and businesses.
Unfortunately, what grabs the headlines was the $2,000 most Americans would get from the stimulus. The news is understandably focused on simpler one-liners. What does the rest of the legislation contain?
Well, you could read the long-form legislation for one. A simple Google search will bring up the Act.
But that is understandably tedious. Art Smith, a 20 year veteran in financial planning has done a breakdown of some important provisions in the act.
During this crisis, the government is trying to make access to credit easier. For instance, before the Pandemic, taking a distribution from your retirement plan, be it a 401k, an Individual Retirement Account (IRA), or any other type would get you slapped with a 10 percent penalty provided you are under 59.5 years old.
The CARES Act eliminates this penalty, for now. This means that individuals who already have substantial retirement savings built up can borrow from their retirement accounts to invest or cope with economic shock events like a business slowdown.
Notably, it is better to spread that distribution over three years to reduce the impact of income taxes. The provision opens up a portion of your savings with a cap of $100,000. Before this act, taking a distribution could come with a tax bite of up to 30 percent. Accordingly, people who know of this provision can have extra liquidity and capitalize on opportunities.
It is important to state that it is not wise to cash in on a retirement account early. That could be a slippery slope. However, if you have a large retirement account, say $200,000+, taking five percent or so for investment is a viable risk.
This provision is just an example of what is possible with more information, more research, and more latitude. Rich people are able to stay ahead because they have the best tax lawyers to always crunch such information for them. There is no reason why you should also not utilize every rebate or relief legally available.
Mining Bitcoin as a Feasible Alternative
In the spirit of taking advantage of opportunities, mining Bitcoin is one of those options many people wouldn’t be bold enough to try. Bitcoin mining is a great way of scaling up your way to financial freedom.
Bitcoin mining is competitive and requires optimum conditions. Even if you purchase equipment, having a professional mining operation that can provide cheap power and cooling is prudent.
Enter VBit Technologies.
This is a mining equipment reseller that also provides hosting services. VBit takes care of much of the logistics that Bitcoin mining entails. This leaves clients with the simple role of consistently earning from your mining operation.
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