Do you want to decentralize your personal finances? Is Bitcoin a good investment? These are important questions to consider.
I know I’m frustrated by centralized control in general. I’m interested in making my own decisions about how to live my life, and I’m disinterested in having anyone telling me what to do.
While it feels like this is the first time we’re questioning the role of government, the best way to educate our kids, and the wisest ways to police our communities, it’s been going on forever.
My goal is to give you some ideas to consider about where it makes sense to decentralize your finances, and where it doesn’t. As an independent thinking, I want to consciously make as many of these decisions as I can. But maybe you don’t. And that’s ok.
As a financial advisor, I’ve been helping people come to their own conclusions about the best way to manage their money for over 20 years. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- Centralized versus decentralized
- How money fits in
- Putting the personal in personal finance
Let’s get started.
Centralized versus decentralized
When I think of centralized control, things beginning with “big” come to mind. Big government, big pharma, big tech, big food to name a few. You can also lump legacy media, Wall Street, and “the man” into it.
According to Wikipedia, “Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group. Concepts of decentralization has been applied to group dynamics and management science in private businesses and organizations, political science, law and public administration, economics, money and technology.”
Centralization came into the public discourse in 1794, and decentralization in the 1820s. Humans have been weighing the pros and cons for a long time.
Over the past couple of years, Americans have grappled with the best ways to educate our kids, police our communities, the validity of remote work, vaccine mandates, and a woman’s right to choose. We’ve also seen the rise of decentralized financial options like crypto assets.
Here’s what I know I want; the truth. I want to be able to take in factual information, and make an informed decision. And I want to be able to do that in every aspect of my life. I’m interested in removing as many barriers to the truth as possible. That doesn’t mean I want anarchy, quite the opposite. I’m an advocate for rules, regulations, and justice. Like everything else in life, the answer and way forward is somewhere in the middle.
How money fits in
Technology has broken down barriers, increased access and driven down costs in many areas of life, including money. From the shift from pensions to 401(k)s, the rise of mutual funds and online trading, to crypto assets, investors are gaining more and more control over their money.
In 1875, the American Express Company developed the first private pension in the United States. Prior to that, the military and government had been providing pensions since 1781. In 1935, Social Security was introduced and it evolved throughout the century.
In 1978, the 401(k) was born. This qualified account grew in popularity and today, it’s replaced pensions as the primary vehicle Americans used to save for retirement.
A pension is a type of defined benefit plan. 401(k)s are a type of defined contribution account. Defined benefit plans specify the amount of benefit (income) the participant will receive. Defined contributions plans specify only how much employers will contribute to the plan (if anything).
One of the key differences is this: the bulk of responsibility for retirement security has shifted to you and I. We are responsible for saving and investing enough money to one day move away from full-time employment, and into retirement.
Unfortunately, many Americans have neither accepted nor embraced that responsibility. The average American has $167,000 saved for retirement. That’s taking everyone into account; from Boomers to Gen Z.
In 1991, ETrade changed the way Americans bought stocks. It was now possible to cut out the broker and invest in the stock market directly. Mutual funds became commonplace in the 1980s and 1990s, giving investors the opportunity to more easily diversify. More recently, online trading platforms like Robinhood have made investing a lot more popular.
Crypto assets like Bitcoin and NFTs, and blockchain technology, promise to decentralize the financial system.
And, like everything in life, there are tradeoffs. With freedom comes responsibility.
Putting the personal in personal finance
In the movie the Matrix, the protagonist Neo is confronted with a decision: take the red pill and learn the truth, or take the blue pill and go about your life as it was. Taking the blue pill means living paycheck-to-paycheck, being burdened by credit card debt, and not saving and investing for your future. Essentially what the majority of Americans are doing.
Accepting personal responsibility for your personal finances is taking the red pill.
Have you ever heard this one; “They should have taught us how to do that in school.” Sure, maybe personal finance should play a larger role in the high school curriculum. But I submit it wouldn’t make that much of a difference. I think most Americans fundamentally know what they ought to be doing with money, but choose not to. The fact that the majority spend more than they earn is evidence of that.
Who is responsible for your kid’s education? Is it you, or the government? Who’s responsible for your personal finances?
I’m not saying personal finance is easy. It’s not. In fact, it’s very challenging. Becoming financially successful requires resources. You’ll need to devote time, attention, and potentially money to doing so. But you can do it. You have access to the tools you need to make it happen.
Here’s what’s required; you need to decide which aspects you’re going to handle yourself, and which aspects you’ll need assistance with. And you need to be honest with yourself. It’s ok if you don’t want to learn about income taxes, but you’ll need assistance in that area.For every area you’re not going to handle yourself, you need to make sure it’s being taken care of.
I like to think of my personal financial situation like a jigsaw puzzle. The first step is to determine how the puzzle is supposed to look. From there, the individual pieces are the various accounts, investments, products, documents, etc. Once you know how your puzzle looks, you can figure out which pieces you’re going to be responsible for, and which pieces you’ll need help with.
Adding professional help doesn’t mean you’re giving away control. It means you’re taking ownership and putting a great team together.
Through decentralization, you have a limitless number of options for filling any needs you may have.
By taking the red pill and accepting responsibility, you can benefit from the decentralized financial tools available to you. Take ownership and move forward accordingly.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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