Bitcoin – may be legal tender in El Salvador soon

Firstly, the term “legal tender” is only ever used when a Scotsman tries to use their funny money to pay in a shop in England. “It’s legal tender!” they would shout at the shopkeeper in a Scottish accent… That’s probably one of the few examples of “legal tender” used in a sentence.

Second, where the hell is El Salvador? I’m glad you asked. I googled it and can tell you with confidence that it lives in Central America next to Guatemala and Honduras. I’m sure the weather there is nice all year round…

I admit I know virtually nothing about El Salvador but I love the fact that they might make Bitcoin legal tender. This is huge! I hope many other countries will follow suit.

I’ve always liked crypto and all the possibilities of blockchain. That’s the way forward. I imagine central bankers are all scheming right now to maintain the status quo and how best to avoid innovation at the pretence of protecting the consumer. Let’s see what they come up with this time… maybe some economic sanctions on El Salvador because Bitcoin will totes be used for money-laundering (and conveniently forget that cash is also used for money-laundering).

Crypto is the future! I’m very excited to see it spread its wings and fly.

I also did a quick backtest of how well Bitcoin and Ethereum have done compared to the S&P 500. I looked at what it was like for somebody who missed the crypto boat in 2017 and started to contribute £100 each month from January 2018. Spoiler alert, they’d be pretty happy even though it’s been a very choppy ride in crypto.

Bitcoin VS Ethereum VS S&P 500, 2018 Jan to 2021 May.

The above isn’t investment advice but clearly shows the potential of crypto.

Enjoy the ride!

Wealth update – 31/05/2021

New home and a new friend

We are moving to our new rental flat next week and we also got a puppy. This has meant that we had an expensive May (as can be seen by my cash levels reducing a bit). We paid for

  • one month’s rent in advance – £1,150
  • 5 week’s rent as a security deposit – £1,325
  • moving van – £164

We will also have to pay another £100+ for the end-of-tenancy cleaning in the old flat but that’s yet to happen as we haven’t moved yet.

The puppy cost us £2,300 + a few hundred for toys, a crate, leash/harness, food, vet visits, poop bags etc. This was worth every penny as he is adorable!!!

June should be better from a cash flow point of view as we are due to get our old security deposit back. I’m expecting to get the full thing back but we shall see if any deductions need to be made. We will also claim for the 1-3x security deposit penalty from the current landlord as they failed to protect our security deposit within 30 days of us paying it. This will be the second time we’re doing it – so I’m confident this will be a “productive endeavor”.

Counting my beans

May was a negative month for my portfolio. My net worth as of 31/05/2021 was £191,503 – a decrease of £6,604 or 3.33% from the end of April 2021. This is after me making a £1,600 GIA top-up, £411 pension top-up, and £50 was paid into Premium Bonds.

I didn’t get my £1,000 LISA bonus in May. Instead it was paid on 1st June… so it will be reflected in the value of my portfolio in next month’s wealth update.

Upcoming actions

I need to do my 2020/21 self-assessment tax return as I now have all the information to put it together. This should lead to a tax refund of circa £100.

Enjoy the summer as it looks like it’s finally arrived!

Inflation and loyalty

We had the UK inflation figure come out today at 1.5% (CPI) compared to a year ago. A month ago this was 0.7%. It’s definitely on the rise and something that has been talked about in the finance media for quite some time. It’s similar in the United States where inflation is 4.2% compared to a year ago.

Inflation is a good thing provided that it is kept under control. That’s why you see governments target 2% for annual inflation. A slight increase in prices means that the economy is functioning well and money is changing hands and signals a healthy economy.

Conversely runaway inflation signals major trouble. Look at Venezuela (3,012.2% inflation), Iran (49.5% inflation) and Argentina (46.3% inflation) today. I know things are really bad in Venezuela… not so sure about the other two but they do need to get things back under control or risk heading in the direction of Venezuela.

One thing which has stuck with me is the way Milton Friedman describes inflation. He calls it “taxation without legislation”. Politicians don’t want to raise taxes as it’s a poor career move. As a consequence, they are happier to print more money. This leads to more money being in an economy and more of anything tends to reduce its value. Therefore money starts to lose its value and prices go up. We end up with inflation.

Printing more money requires no new legislation to be passed i.e. to target who or what gets taxed. The reluctance to raise taxes resulted in a tax – inflation – which impacts all of us.

You’re worse off financially now unless you got a raise of at least 1.5% this year if you live in the UK. My salary didn’t change as my letter from my employer stated “we have reviewed your salary, and can confirm this will remain at [amount] per annum”. Sad.

I wasn’t expecting much of an increase anyway. The best way to improve earnings is by changing employers. Loyalty doesn’t pay and results in you being materially worse off in the long term.

I’m glad I managed to secure my new flat at the same monthly rent as previously (£1,150 pcm) so my largest expense doesn’t change for some time. I hope some of you were able to do so (or better) as well.

Good luck navigating the more expensive world!

(All inflation figures above are from TradingEconomics.com as at 19/5/2021.)

The UK state pension

My last post was about Child Trust Funds, which are relevant to young people and this post goes all the way in the other direction. It’s mostly for the older demographic, who are in their 60s. So, let’s talk about the UK state pension.

It looks like somebody is checking her state pension forecast.

In order to “earn” a UK state pension, you need to pay National Insurance Contributions (NICs)- these are automatically deducted from your monthly salary. A certain amount needs to be paid each year to lock in your “qualifying year”.

You need to pay NICs for at least 10 years to get any state pension. The maximum state pension you can get is currently £179.60 per week i.e. £9,339.20 p.a. and requires you to pay NICs for 35 years.

If you are in your early thirties, then the state pension is expected to start at age 68 or maybe even later… it’s around age 66 for most people today. The government is broke, as is often the case, and there’s a good chance there will be further extensions to the starting age for the state pension.

However, the income itself is very valuable. It is guaranteed by the government and inflation-protected by the “triple lock”. Each year the state pension increases by the greatest of 2.5%, average UK earnings or inflation (CPI). Therefore, at least 2.5% each year. That’s really good and very expensive for the government. Any politician who decides to get rid of the triple lock will commit political suicide as that poor chap will be voted out by the older demographic.

The thing about needing 35 years of NICs isn’t the entire story. There are many people who have paid NICs for longer but won’t qualify for the full state pension. There’s a big bureaucracy involved in calculating your state pension and it’s very complicated (so I’ve been told) to find out why your entitlement is reduced even though you’ve paid in for more than 35 years.

You should request a state pension forecast to get an idea of what you might get at your state pension age. Please note, that forecast can look deceptive as on its first page it can say in big letters that “you will get £179.60 p.w.” [i.e. the maximum] but then in smaller letters qualify it with “if you continue working until your state pension age” or something like that (sorry, it’s been a while since I’ve seen a statement). That’s a bit sneaky but I think the current entitlement was mentioned somewhere as well.

It’s easy to find out what your NI record is if you have a gov.uk account. That record will identify how many NIC qualifying years you’ve got and which tax years you’ve missed out on. It also details, how much it would cost you to plug a missing year – it’s around £800 for each year by the way but can be less if you partially paid in in a particular year.

Generally speaking, plugging those holes in the NI record represents fantastic value. Let me illustrate: if you have 34 years, then your state pension should be circa £9,339.20 / 35 = £266.83 less each year compared to having a full state pension. You would need to plug that 1 year with a one-off payment of circa £800 and in exchange, you will receive an additional £266.83 p.a. of inflation-proofed guaranteed income for the rest of your life. You will be in profit after about 3 years. This additional income would represent an annuity rate of 33%, which is insanely high. It is fantastic value.

So, if you (or your parents) aren’t far from their state pension age, make sure they check their NI record and plug any holes in it. Remember, this needs to be done before reaching your state pension age.

Bureaucracy warning! The actual mechanics of plugging the missed NIC years can be complicated. Essentially you need to call HMRC, fill in a form, get them to provide you with a reference number (for one-off payment), etc. It’s all made very difficult – I wish you could simply look at your NIC record and click on the monetary amount next to the tax year in question and then enter your card details. That’s what it should be… but this would mean that an army of bureaucrats would be out of a job and we can’t have that.

If you are still relatively young and know that you have many years of employment ahead of you, then you should bookmark this post and come back when you are 60+.

Have a good weekend!

Do you have a Child Trust Fund you’ve never known about?

A new long-term investment account was announced in 2005 (in the UK). This was for children born on or after 1st September 2002. It was called a Child Trust Fund (CTF) into which the government paid £250 in the beginning and then another £250 at age 7. Parents were able to add more into the account (subject to an annual limit). Families on lower incomes could get an additional £250 both at the start and age 7.

The account was the predecessor of today’s Junior ISA.

After age 18 the account can be accessed or re-invested in an ISA etc. However, there is a high incidence of ‘Addressee Gone Away’ accounts – this means that many people have a CTF account with their name on it but simply never knew about it.

I realise this article should live on TikTok, because that’s where all the kids are on. However, it’s also relevant to parents of kids born between 2002 and 2011.

Child Trust Funds were discontinued in 2011 due to politics and probably the cost involved as well. Existing accounts could continue though.

If you were born after 1 Sept 2002 (about 18.5 years ago) then there’s a good chance you have a child trust fund with at least a few hundred or few thousand pounds in it. This is accessible for people who are 18 years old today… and gradually more and more CTF accounts will “mature”.

It’s possible to track down your own or your child’s account and the process is explained on the government’s website.

I hope some of you find the above useful and are able to track down your child trust funds. 🙂