Financial Uncertainty

Lately, I have had financial uncertainty. This does not mean that I am concerned that I will lose my income. Rather, it means that I don't know what to do with my income. I don't know what to prioritize. There are many things that are important in personal finance. Paying off debt is one of those things. Having an emergency fund is another good thing. Investing your money so that it grows is another good thing. There are other good moves like having insurance and increasing your earning potential.

The trouble is, where does a dollar decide to go? Will it pay off debt? Will it hide away as an emergency savings? Will it go find a job? I only have so many dollars to go around each paycheck. I have a difficult time deciding where it will provide the greatest advantage.

Paying Off Debt

Paying off debt makes sense, in general. You are eliminating a passive cost. This is a cost that doesn't provide you any benefit. If you buy an ice cream cone with cash, you have the benefit of enjoying that ice cream cone. When you pay interest, you aren't exactly enjoying any benefit from it. In this regard, interest is best avoided.

But, paying off debt is not so simple. What complicates things is the type of debt. Revolving credit lines are best for paying down, like credit cards. If you pay down your credit card, you still have the rest of the credit line available to use in case you need it. And, in case that you are short on paycheck, the more you pay down on a credit card, the smaller your minimum payment. Credit cards get a bad rap because of their high interest rates. However, if you are churning money through your card, the interest you would pay is minimal, if any.

A mortgage or installment loan, on the other hand, is the worst. From beginning to end, your payment remains the same until the debt is paid off. If you need more cash, you can't borrow it back out from the loan. At best, you can reduce the interest cost by paying off the debt early. However, every dollar you pay an installment loan is gone. You can't use it again like you can on revolving credit.

Saving

According to financial publications, most Americans don't have so much as $500 in savings, much less $1000. This flies against the recommended 6 months of income we should have in savings. I am not against the idea of saving. Except that 6 months of income is a huge amount of money for me. I have never saved that much. In fact, I've never even owned a car that was worth that much. This is not to say that I will never have 6 months of income saved. It's just that there is a big gulf between my savings and there.

The hang up I have with saving cash is that I know that it's like a melting ice cube. I need it to be earning. However, it does not do me any good to save cash in assets that fluctuate in price or that are difficult to liquidate. Fortunately, stablecoins come to the rescue. They pay decent interest rates and remain stable in price.

Currently, I am doing better than the average American. I have more than $1,000 in cash. But, I am short on the recommended 6 months. The problem is that each dollar I save is a dollar that is not paying down debt, thereby reducing my interest cost.

Investing

One lesson that always sticks with me is that if you are going to invest, it needs to be big so that your returns matter. If you are getting 8% annually from a stock, it's considered a respectable return. But, 8% of a $10 share is $0.80 in growth or dividend. If your investment is $100, then you are getting back $8 in value. These returns are good, except that they are not life-changing with values so low. If you're going to invest and get back useful returns, you need $10,000 or more to make the investment worth your time.

I don't have $10,000, yet. But, I can put away a little bit of money at a time to build up my investment to the level where it will generate meaningful returns. However, every dollar that I put into these investments, is not generating meaningful returns until the aggregate starts getting large.

We can look at Hive Power as an example. It has taken me some effort to reach 5,000 HP in my main account. Currently, I have delegated about 500 HP to each of my alt accounts. I have about 2000 HP leased out, which generates 1 Hive daily. It sounds impressive to generate 1 Hive in passive income when it takes so much effort to write a blog post that doesn't even earn that much. But, 1 Hive is $0.15 at the moment. This is not going to turn my life for the better at this level. I need to be at Orca level for Hive to generate "interesting" returns. Although I could not live off the passive Hive earnings, they would still be worth having. I would need roughly 2 Million Hive at today's price to produce the income I need to match my current lifestyle. There is a big distance between 5000 HP and 2 Million HP. Of course, I don't have 2 Million Hive lying around.

In Short

There are too many jobs for my money and too many considerations about how to best deploy the dollars. It creates confusion and uncertainty about whether I am doing the right thing. My biggest concern is being like the guy who chased two rabbits and caught none. Rather than try to do everything, I need to be clear about my priorities and be comfortable that I am not doing some other things with the money. If I'm saving, I have to be OK with not investing, or investing less. If I'm investing, I need to be comfortable with not growing my savings further. All this requires some degree of introspection to figure out what is important, therefore what should be done financially.

Posted Using LeoFinance