Lately, I’ve been researching Bitcoin and the more I dig the more it makes me question what financial independence (FI) really is. It’s a question that is only made possible in our new world of digital currency. The truth is that today we don’t need to use Bitcoin in order to be financially independent. But this truth depends on how we define financial independence and who or what we’re trying to be independent of.
Traditionally FI seeks to remove the “need” to work for our money and to have total control of our time. Having total control of our time is achieved by building up wealth in a fiat currency whose value is out of our control. And it’s this lack of control that worries me and is possibly making me rethink the financial risks associated with my wealth, which is mostly based on a fiat currency.
Let’s dig in further.
How do you define financial independence?
Financial independence is the state of having enough financial wealth to live without working. The Merriam-Webster Dictionary defines financial freedom as “the quality or state of being free from financial worries”. In other words, financial freedom means to have enough money in order to live without constantly having that looming fear about finances. This is achieved through a combination of smart saving, wise investing, and financial discipline in order to build up an investment portfolio that generates more money than it consumes.
If you’ve done this right you will also diversify your portfolio across stocks, bonds, and real estate. This makes it easier to manage risk as some markets may be doing poorly while others are performing well. We don’t want all of our eggs in one basket and we certainly don’t want the value of those baskets dropping at exactly the same time.
Furthermore, you would have also considered the effects of inflation. Inflation is the rate at which prices for goods and services increase. It’s key to make sure our investments are earning more money than the cost of living from your desired lifestyle and the increases in goods and services caused by inflation.
So, as long as you’ve considered the many common factors around FI you should be in good shape and your money should continue to make money until the day you die and beyond. But what if the fiat currency our wealth is built on has a drastic reduction in value? And should we continue to assume the dollar is too big to fail?
Are fiat currencies a risk to financial independence?
The default focus when doing retirement planning or planning on how to reach financial independence is cash accumulation. And when we think of risk the focus is mostly around diversification. But governments play a big role in the value of its currency which directly or indirectly can impact the money your invest for early retirement. The financial world is controlled by governments who print money based on the needs of that government.
The Federal Reserve, for example, dictates how much U.S. dollars are in circulation at any given time, and this directly impacts our financial lives. If they want to stimulate the economy through spending, then they buy financial products which inject debt into society because not every company or individual can pay back their financial obligations. This is one reason why we have our current economic problems and it’s also the main reason why so many Americans are financially strapped, in debt up to their ears, and living paycheck-to-paycheck lives.
We base our wealth on a fiat currency that has no financial discipline behind it and is basically controlled by the government who prints money when they deem it necessary. The financial crisis of 2008/2009 that almost collapsed the entire world economy was basically a financial manipulation scheme that was bailed out by the American taxpayer. And increased spending and bailouts seem to be a growing theme these days.
If fiat currency is a financial manipulation scheme that has been going on since 1913, should we consider government and financial institutions as a risk to being financially free?
Since our money is manipulated by those in power, if they decide to devalue your currency overnight you will have no say as an individual. They will keep doing it because they can, and you won’t be able to do anything about it. It’s happened before in history, most recently with the Weimar Republic, Zimbabwe, and Venezuela.
So, it seems like financial independence doesn’t exist today because there is always financial manipulation by the government and financial institutions that control our money supply. But what if fiat currency was replaced with a new monetary system, something outside of government control where value wasn’t manipulated for political reasons, financial independence might be possible.
If you are financially independent, then you don’t need to work for money because your investment portfolio is large enough that it generates more income than it consumes. You can live wherever and however you want without having to worry about financial constraints.
But what if we didn’t need fiat currency in our financial lives? What if there was a financial system that wasn’t manipulated by people in power? What if financial independence meant being able to live your life without the need for fiat currency, debt, financial institutions, or anything else besides yourself and what you produce?
That’s where Bitcoin enters the picture.
Bitcoin is Financial Independence!
The beauty of Satoshi Nakamoto’s invention is that it’s a financial system that isn’t manipulated by a government or financial institutions. There is no financial middleman, and this means there is no manipulation of financial value for political reasons which could lead to financial independence in our lives.
The moment you start buying bitcoin, you’ve achieved financial independence! There are no third parties who can claim ownership of your bitcoin; there are also no restrictions on the movement of your funds.
But, there has been some debate about whether Bitcoin can truly be used as money because it’s deflationary meaning its price will increase over time. But financial independence isn’t about being rich, it’s about living your life on your own terms without the need for financial constraints and manipulation from financial institutions or an out-of-control government with a history of financial instability.
We don’t like talking about financial instability because it’s unpleasant and we can’t control it. But financial instability is a reality for us all as fiat currencies like the U.S. dollar (USD) are not backed by anything other than government decree which makes their value vulnerable to politics, conflict, inflation, or deflation; essentially any financial manipulation that will keep you from achieving financial independence with traditional savings methods such as investing in the stock market.
So do we really need Bitcoin to achieve financial independence?
Technically, the answer is “YES”. Bitcoin is not without its financial risks though, but it has at least one advantage over fiat currencies when it comes to financial independence: Bitcoin’s value cannot be manipulated by central banks or governments because of its decentralized nature. Oh and if you didn’t know government is also looking into creating what they call CBDC or central bank digital currency. But I doubt they’ll be looking out for what’s in the best interest of the people if history is an indicator.
When you buy bitcoins, they are yours and no government body can decide their worth. With traditional currency, your financial security can be at the whim of financial manipulation. And if the government creates its own digital currency it’ll probably be more of the same.
In the end, Bitcoin can give you financial independence by not having your personal finance dictated by politics or inflation because there is nothing keeping its value from going up and being transferable across borders without permission from anyone else. It’s certainly better than a fiat currency in that respect, but it won’t magically give you financial independence in the form of wealth. And it’s up to us all to do our own due diligence when planning our financial future regardless of whether we use Bitcoin or not.
So, do we need Bitcoin? The answer is no… for now. But what about in the future when the dollar isn’t worth the paper it’s printed on? By that time the value of Bitcoin will most likely have increased significantly. This is why I’m investing in Bitcoin today. I’m not only investing in Bitcoin because of the potential upside but also for the control and freedom it provides.
What do you think about Bitcoin’s financial viability in the future and our financial independence? I’d like to hear your thoughts. Comment below!
Recommending reading – The Quickest Way To Achieve Financial Freedom Is With Bitcoin by CASEY CARRILLO