ichthyoid

When I first started writing on Coil, I began with a series on being your own bank. The premise of that series was to explore how an average individual today could take a few different products and services and use them to effectively become their own bank without the need to depend on traditional financial institutions.

However, in that series, I didn’t really write about any specific products or services, just generalizations and concepts. I kept it that way because I wanted the series to be more about the foundation of being your own bank, rather than localizing it to only what you can do presently.

But for today, I going to write about specific examples of how anyone can “unbank” themselves in 5 easy steps.

Step 1: Budget Finances

The first step is the easiest, and the best way to get started. Determining a budget for your income is the fastest way to systematize your financial life to make money management less stressful and more effortless.

Generally, it’s a good idea to start with a 10-20-70 style budget. This means that 10% of your income goes towards savings, 70% of it goes toward your required monthly expenses, and 20% of it goes toward monthly luxury spending. Determining your budget really allows you to get a good overview of what your income is, how many income streams you have, and get a mastery of your financial life.

Using this template, many people begin to gradually reduce their required monthly expenses (since 70% seems like a lot), and even their monthly luxury spending. This is because having a bigger savings for investing and passive income through interest rates and dividends will propel you to be able to spend more later down the line. And so, with that in mind, people sometimes go from the 10-20-70 (savings-luxury-expenses) budget to 20-20-60 to 30-20-50 to 40-10-50. Of course, all this depends on how you want to manage your own finances, but it's a great starting point.

Step 2: Divide Your Savings

After determining a budget, it’s time to look at the savings portion of our income. We need to divide our savings into what we are and aren’t willing to risk. The risky portion of our savings we’ll put towards investments into the stocks and speculation market. The non-risky portion will be put into more stable assets.

I’m personally really risk-averse. I have over 80% of my savings in non-risky assets, and I’m always looking to reduce that low risk I already have. This is because of a personal aversion to speculation, rather than any real moral or principle I believe in. But my suggestion is always to have more in non-risky assets than risky investments, since that will create a solid foundation that doesn’t get destroyed by market crashes or even slight recessions.

Step 3: Convert into Crypto

At first, this seems like the opposite of what I talked about above. After all, isn’t cryptocurrency risky? Isn’t crypto really volatile, with prices fluctuating and being manipulated past any sane person’s ability to manage?

Sort of. The kind of cryptocurrency I’m talking about isn’t the kind you hear about often on news sites. I’m not talking about Bitcoin, Ethereum, EOS, Litecoin, or even XRP (in this instance). Those are volatile assets (for the most part), and would be part of the risky investments I was talking about before.

Instead, I’m talking about stablecoins. There are many coins which exist on the Ethereum platform (called ERC20 tokens) that are pegged to specific currencies. Because of this, they will generally have (or attempt to have) a 1-to-1 relationship with whatever fiat currencies they represent. For example, USDC has a 1-to-1 corollary with the US Dollar.

If we convert our savings and luxury expenses into stablecoin crypto, we actually haven’t done anything except tokenize our income. And by doing so, we can have more control and ownership over it, without being exposed to much volatility.

Now, you don’t need to convert all of your income into crypto. In fact, if you’re planning on spending a portion of your money in stocks and bonds, that money shouldn’t be converted. Furthermore, many of our expenses (such as utility bills, rent or mortgage payments, car payments, etc.) cannot be paid yet through crypto. And so a large portion of our monthly expenses cannot be converted.

However, by converting the rest of our income into stablecoin, we are now much freer to determine what we want to do with our money. As a starting point, I recommend having your own personal wallet for crypto (whether hardware, paper, or app based), so that you can keep control of most of your money.

Step 4: Use “Unbanking” Services

When I say “Unbanking” services, I’m mainly referring to services which offer to store cryptocurrency and give you interest on it. Most of these offer much higher interest rates than any traditional bank would today. Even a crypto exchange like Coinbase now offers some interest on some of the cryptocurrencies you hold with them. However, here are some I would recommend.

Celsius Network is a service which currently offers decently high rates of interest for any of the 24 cryptocurrencies they support. Chances are, since we’ve converted into stablecoin, you’ll be able to earn interest off of them. Their rates have fluctuated between 3-10%, depending on general demand for the coin, as well as how much of their proprietary coin (called CEL) you hold. The only caveat is that their interest is Simple Interest rather than Compound Interest. There are a few ways around this, but suffice to say, if you care more about high interest rates than compound interest, this service is a really good choice.

Bitrue is a crypto exchange service which has also started offering interest for holding crypto with them. They allow interest on a number of coins, including XRP, Bitcoin, Ethereum, and many stablecoins. Their interest rates are also based on the amount of their proprietary coin (called BTR) you’ve invested into their platform. They are also mainly focused on Simple Interest. So far, their interest rates have been higher than Celsius Network. Also, since they are an exchange, it is much more a one-stop shop for all things crypto. It must be said, though, that due to a recent hack, they lost a bit of public support, even though they seem to have returned all stolen assets to their customers.

Then there's Compound.Finance. This is an actual decentralized platform in which you have your own personal wallet, and so have the most control over what you have. You can even connect your Ledger hardware wallet to it, if you have a Ledger Nano S or X. Its rates aren’t the best, though, with around 4-6% for stablecoins, and much lower for others. Furthermore, the only two stablecoins it currently supports are USDC and DAI. If you’re very concerned about security, then this is the best platform. However, if you’re wanting higher interest rates, then Celsius and Bitrue are probably better ones.

There are other unbanking services as well. However, the above are the ones I’ve found to be the best or most stable, while still offering decent interest rates.

Step 5: Start Your Own Investing

For the rest of our savings which we want to use towards more risky investments, we can download apps or use online services. While there are many apps nowadays which will allow for this, there are generally two ways I will highlight for us to begin investing without needing too much capital.

First is to automate our investing through services like Acorns, Wealthfront, or Betterment. These services provide automated investing into the stocks (and sometimes bonds) market. The automation allows us to not really have to think much about what we’re investing into. Instead, we pick risk profiles and what areas of the market we want to invest into, and the bots do the rest for us.

Second, we can use manual investing services like Robinhood, Webull, or M1 Finance. These services allow investors to individually pick what stocks and companies they want to put money into, rather than having a bot do it for them. This gives customers more control, though with that control comes more risk, as money invested isn’t auto-balanced or de-risked by any sort of algorithm or advisor. With M1, you even have the option to loan money and use a debit card attached to your account (Robinhood will soon have this feature as well).

With that, we have set up a system by which we have torn our dependency on financial institutions and retained more control over our own value. We have also regained a proper return for our hard earned income through better interest rates and a customizable investment portfolio which we have the final say for!

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