Bitcoin Criticism – Broken Window Fallacy

I like to follow the wider crypto currency news and industry developments. I often come across wild exuberance and extreme criticism. Over time I have noticed that a lot of points against digital currencies that while valid at the time quickly change with the adoption of new people and technology.

Early on the most common criticism of Bitcoin was that it wasn’t worth anything. People were mining 50 BTC in blocks with hardware on there desktop. Anyone could accumulate hundreds of BTC if they wanted to unfortunately no one could have guessed that they would become as valuable as they are now. In hindsight it seems funny to criticize the absence of price when it is often the most significant characteristic to newcomers.

After the value criticism was that no one accepted it for payment. Only a handful of stores accepted bitcoin. While most businesses still don’t accept bitcoin there are a significant number now and new integration services that make it easy for new stores to start. Also now that the value Bitcoin is widely known more people are now willing to accept it in place of dollars.

The next criticism was that Bitcoin has no intrinsic value. It was common to compare it with the Dollar but in comparison there is no intrinsic value of the dollar. People also compared it with gold because you can hold it and that is true but it doesn’t mean that an electronic currency can’t provide value on it’s own.

Lately the criticism of Bitcoin is that the network doesn’t have the capacity to handle enough transaction volume to support a larger economy. While the core network is limited to about seven transactions per second there are many groups working on solutions that will allow significantly more in the next few years.

I’m not saying that criticism can’t point out valid issues with Bitcoin but in the context of changes already in motion it makes sense to make a hedged guess and use the opportunity as an investment.

One of the most bizarre criticisms that I disagree with is that Bitcoin, or others like it, can never be used in a functioning economy because the deflationary nature of currency issuance will cause people to save instead of spend. As a result businesses in their economy will not have enough customer demand to survive and the economy will collapse.

I believe that most people who make this criticism are viewing this as a variant of the broken window fallacy. The broken window fallacy says that destruction of a local town shop window is good for the economy because it necessitates the services of a local window repair person, thus earning them money to support their family. Of course this is a fallacy because the net result is a loss as the cost to the shop owner is more than the gain to the window repair man. The shop owner also would have used the same money paid the repair person to spend in the economy.

In this example the breaking of windows is analogous to inflation of the currency.

Most people have lived in a financial system that inflates savings for their entire life and simply can’t comprehend anything different.

In an economy with a different monetary policy people will still need to buy things in order to live. Currently with dollars there are incentives to spend because the value of dollars are eaten away as time passes. In a Bitcoin based economy the incentive might be to hold rather than spend if they are on the fence of a purchase. But people would still buy the things they need.

The key point is that people have to work in a dollar economy to replace the value that is eaten from holding dollars. Does this necessitate the creation of unnecessary work? Is the current expansion of production and consumption of natural resources unsustainable? I think so.

People right now need to work because in a fractional reserve based economy any assets are quickly eaten away with a small amount of deflation. Most people need full employment to just get buy.

I’m not suggesting that Bitcoin will become a predominant currency but rather than the hypothetical outcome isn’t necessarily worse than the current system.

Update:

As a counter point to the broken window fallacy comparison the argument has be made that the key point of the effect of deflation is reflected in the use of effective resources rather than the observation that some things are broken. In other words it is more desirable irrespective of currency system to make optional use of all available resources, human labour and capital as it provides opportunity for growth and leaning. Additionally people don’t hold dollars because of inflation and as a result don’t significantly suffer as a result. All interesting ideas.

Financial Planner

I met with an old school friend that is a financial planner to discuss some available investment options. Currently I manage my own investments across different asset classes and re-allocate based on market trends and imbalances. I look to sell overvalued assets and reinvest in undervalued yet fundamental alternatives.

My primary hesitation with using an advisor is the commission structure and limited available asset options. I would be happy to pay an advisor a high fee for their time and advice on as regular basis but not on a commission of total invested assets. Commissions based on invested assets causes several issues, one being because the available investible assets are a subset of what I am interested in they are disincentivized to help allocate towards assets they don’t sell. Secondly the commission fees are disproportionately high when investing a retirement level of assets.

In my case I plan is to grow my assets and place one million dollars in index stock and bond funds and use the expected four percent yearly return as backup income to cover my cost of living. My current living expenses are around twenty something thousand dollars per year making my monthly draw about two thousand dollars. If I was to have a financial advisor invest one million with a 1.5% commission that works out to be $1250.00 a month. With a drawdown of $2000.00 a month to live that is a high percentage considering that the alternative is a $25.00 fee for managing my own investments through an online broker. Note that each of the stock index funds have a commission fee attached that applies weather they are self directed or managed through an advisor.

Ultimately I want to make my own decisions for where to invest and have the responsibility to research opportunities and learn from the experience.

 

 

 

 

Being Sick

Through the past several years I have been sick fairly frequently and each time it would play out the same way, soar throat, sinus, joints last about two weeks and completely incapacitate me during that time.

This was common for many years. I assumed there was nothing I could do about it but I have made some progress this year. I think major contributing factors were stress and diet.

A friend of mine mentioned to me that they drink water with apple cider vinegar mixed and that helps. I tried it when I was sick and noticed a significant reduction in the symptoms and length of time that I usually get knocked out for.

Rest and vitamins didn’t make as much of a difference as apple cider vinegar. I also consumed a decent amount of almond milk and I found that this aggravated sickness and made it worse so I reduced my consumption.

I’m just recovering from a head cold now of the same type but this one lasted two days instead of two weeks and it was a lot less unpleasant. I am able to be up and go out to run errands which I would not have been able to previously.

The last time I was sick a few months ago I watched youtube videos on health and wellness. One branch of that was on a raw diet. Since then I started eating raw but gradually introduced cooked foods because one, i’m not a good cook and the foods I could make raw are boring and I found that I have cravings for cooked food and the feeling of fullness that it gives me. My experience eating raw is a much better feeling both mentally and physically but I still have a strong addiction to warm comfort food. When sick raw food does help me recover from illness but my impression is that the largest health effect is staying healthy not recovering when sick.

The other significant contributor to recovery from sickness is meditation. I wrote a previous post here on the details of the meditation I use. For me this practice is something that I find easy to do and causes a relaxed, calm almost trance like state that lasts for about twenty four hours after a thirty minute session. This reduces the discomfort of a cold sinus and join pain far better than Advil or Tylenol.

Because I don’t have to work any more on a fixed schedule I don’t feel stressed about resting for a few days to recover. When I had a nine to five job my sickness would always last two weeks of which the first I would take off work and then worry about balancing taking more time or getting sicker.

Update: 3 weeks later. 

So It took a long time for me to recover after that one. While I was able to reduce the level of discomfort the cold lingered. One possible issue that I’m looking into is the water in my building. When I moved in four years ago I started getting a soar throat and swollen glands regularly. I picked up a water filter and that made an immediate difference. This past week I noticed that the water in my bathroom sink that I use to brush my teeth smells bad so I started brushing with filtered water instead of tap water. My remaining swollen throat went away within a couple hours and I have been find since. I just have to avoid the tap water. This could be a coincidence of timing but that would explain a lot of sickness over the years.

Life Insurance and Emergency Prep

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Here is a summary of some plans and strategy i’m using for general life related insurance and risk hedging.

I have a twenty year old adopted daughter living with me while she originally moved back in with me to finish school but she dropped out and is just working. Unfortunately for her she isn’t able to earn enough to live in this city so I subsidize her housing and food. If something was to happen to me she would have extended family to help her if she needed and she would inherit my assets and be financially ok. My current concern in that scenario is that she wouldn’t know how to manage or maintain investments and loose the benefit of financial independence. I will impart what I can over time but ultimately her choices will be up to her.

I also have two small dogs that come from a past relationship and I love them. They have been by my side for ten years are the most important part of my life so I want to make sure they are safe and healthy. I bought a Nest Protect smoke detector because it has a feature that will notify me if there is a fire. This would at least give me a better chance to rescue them if I was out but nearby.

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I’m in the process of also putting together supplies for an earthquake or other emergency. This includes food, water, lights and a bag with warm clothes, and cash that I can grab if I need to leave in a hurry.

It’s always a good idea to maintain and check the coverage details of your property or rental insurance policy.

If you have dependents and don’t have financial independence levels of equity and depend on income that would disappear if you died it’s probably a good idea to look into a life insurance policy. Be sure to shop around because there is a big difference between offerings.

Other than that it’s always a good idea to keep an up to date will or let an emergency contact know your wishes should something happen to you. Now let’s hope nothing bad does happen.

Meditation

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Years ago I was reading an interview of a guy named David Wilcock. David is an author and has a cool website at https://divinecosmos.com. When he was younger he worked in a mental health institution providing care to people with various types of handicaps. I gather is was a stressful environment for everyone involved.

One takeaway from the interview was about how the behaviour of the people at the hospital changed simply by him holding an idea of love and forgiveness in his mind. David would think about and repeat the two part phrase ‘I love you, I forgive you’ internally in his mind. He Just put his attention on the idea of love and forgiveness and the level of anxiety and stress the patients exhibited in the hospital dropped.

I thought that would be really interesting if a mental activity or state that you hold inside your mind could have a noticeable affect on others around you. So I tried it.

On the first occasion I laid down on my bed and relaxed for a few minutes and begun with a low level of effort or intensity the phrase ‘I love you, I forgive you.’ with a pause over and over. On each iteration I put my focus on my solar plexus / abdomen to represent myself and I would visualize virtual hands to point. Almost immediately I felt what I would describe as a trance like state that was calming relaxing and left open a space for me to continue with the process.

After about thirty minutes within the trance state I started to feel really good almost euphoric. I continued this for about two hours over the next few days and I got to a point where I had to stop because the feeling of trance and euphoria were so strong that it was making me nauseous like I had been riding a rollercoaster for an extended period of time.

During the process something interesting came up while repeating the ‘I forgive you.’ portion. Memories from my past all the way back to my childhood of either things that I had done that were embarrassing or hurtful to others. Because I was in a trance state they played like in a dream and popped up in front of me from nothing. Most of these issues that came up I was able to reconcile them and appreciate why I did them and how they changed me in a way that I can let go of. But there were a few in particular that were not easy to actually forgive myself for so I just accepted that I can’t address it right away and then let all thoughts go for a while and came back to it later. I feel like I am ok with all of the issues that came up previously and I haven’t had any new ones show up for a while now.

One effect that I noticed as a result of this right away is that when I am sick with a cold or other illness this will reduce the recovery time by about four times easily. I now often do this through the day for five minutes in addition to longer times when I can lay down.

I have tried other forms of meditation with other very unique experiences in the past but this one has been the most consistent in terms of effects. I wanted to share this and see if anyone else has the same experience.

This is more of a how to based on my experience. Additionally I believe this has had a lot of interesting results magically manifest themselves in my life that I will continue to experiment with and write about later.

Test Drive – Mclaren 570GT and Audi R8

I was fortunate enough to be able to test drive two cars thanks to Silver Arrow here in Victoria. They are an exotic used car dealership and have very unique cars in on a regular basis. I didn’t buy but i’m looking for something exciting. Here are my thoughts on these cars.

First was a 2017 Mclaren 570GT, which is like the baby of the product line but I haven’t driven any others to compare. In summary this car is like a very luxurious spaceship. With 560 HP it pulls really hard when you step on it which I love.

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The paddle shift is natural and intuitive to pick up. When you slow down it will automatically down shift so you don’t have to worry about stalling it which funnily makes me miss standard.

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The doors open out and up easily and it’s no issue getting in and out for me any way.

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Some things I didn’t like, one visibility to the rear side only works through the side mirrors which makes merging and parallel parking nervous. The front pumper hood looks odd in my opinion. Also when I got out my left let had pins and needles because of a miss aligned seating position. It’s both a firm and comfortable ride but you have to adjust it to get the one you want. The other critical complaint is the price, at 240K cad + a 25% tax the price is high. While the quality is there I would be happy with half the car for half the price.

The second car was a 2012 Audi R8 with a manual transmission. This car is very elegant and indistinguishably just as fast as the Mclaren with over 500HP. It is very spacious on the interior with lots of headroom. One thing that can’t be conveyed in words or even a sound clip is the sound of the engine, it is a musical instrument both from the outside and in. The sound is amazing, you feel it and it’s not obtrusive in the cabin. I can see why people rave over the engine, it’s worth the price alone.

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Driving the R8 felt natural and easy to get comfortable with. There is a price premium on the manual and they were asking for 140K. It checks a lot of boxes but i’m not sure I love it.

These cars are luxury purchases and here are a few thoughts on how I think about financing. Any money that would go to a car in this category would be excess from an amount I need to live off of the interest at a 4% return per year. I’m not looking to lease even though it means paying tax up front and 95% of customers go this route.

In addition to the purchase cost I will set up an investment of stock index funds so that a 4% return on the principal will cover the cost of insurance, regular maintenance and fuel. For an Audi R8 this looks like $2000.00 insurance, $3000.00 fuel and $4000.00 maintenance for each year. This means I would set aside $225K in diversified stocks and bonds just to hold to cover the costs of owning the car. The value will depreciate but I could keep the car or decide to sell it at it won’t cost me any additional capital. All of this depends on having investments that return my cost of living from a 4% estimated return. Personally I wouldn’t buy a car if I didn’t have twice a living savings because there are so many opportunities for investments now.

I will probably post more if I take a look at other cars later in the year.

My Take on an Online Dating Site

This is how I would build an online dating site.

Several of my friends met their partners through online dating but despite that most people I know have had bad experiences through the process.

I was having a discussion recently with a few female friends of mine about the subject and a few interesting things always seem to come up, one being there are a lot of guys messaging them for unwanted sex or misrepresenting their availability for a relationship. That’s to say my female friends get a lot of dick picks and go on coffee dates with guys that happen to be married.

Guys on the other hand have to send a lot of text messages that are generally a poor way of making proper introduction because they don’t convey what people are like in person. I’m also surprised at how many bots and scammers run through dating sites.

Then there is the issue of harassment and general rude individuals. I wonder if a lot of bad behaviour that puts people off of dating could be helped with more social interaction and mentoring. A lot of people go about looking for a relationship in really immature ways that they would never act out in a work or family setting. A few good friends to point out missteps or opportunities may be all it takes for some.

Given all that, here is how I would build a dating site. It’s all about playing matchmaker.

As a user you would sign up with a few pictures and short biography but you can’t message other users right away. You then mark down a block of time in a calendar that you are available for a voice or video conference chat. The site would set up short conference calls to take place with two other users that have the same time available. During the call you get to know new people and make some notes about them. The purpose of the call is not to find someone that you will date but rather to find people that you enjoy talking with so that you can  play matchmaker when you find two other people you think would make a good pair.

The calls would generally start out in short blocks of time between two other people of a random gender. Sometimes this will mean two guys and one girl, one girl and two guys or three guys or three girls depending on preferences. After speaking with several people you will build a list of the ones you enjoy speaking with and then eventually you can recommend matches between the ones you think would be good together.

When someone recommends a match for you a notification will come in and you can message them. In the meantime you can enjoy getting to know new people and help introduce others. If the people you match like each other you get some internet points that would bump you up in the priority list to help boost your exposure. I would imagine people good at finding matches would be desirable friends.

I like the fact there is no immediate expectation when chatting with new people. I also find speaking is a more comfortable way of communicating than texting/typing.

People who typically receive too many messages would only receive recommendations from friends based on an understanding of who you are and what you are looking for.

Alternately people who typically send lots of messages and don’t receive a lot of feedback would be able to build a network of other like minded individuals to talk to and share advice, interests, ideas, etc.

An important characteristic of this set up is that it encourages you to get to know others and put in work towards finding matches. It makes the matches that occur more rare and significant. It feels to me like a more natural way of interacting with new people.

Ultimately it would be a place for everyone to enjoy conversations with new people, expand social networks and potentially find a great relationship match.

There are a bunch of fun variations that might be interesting to try for example allowing people you speak with to add to your public profile. Maybe one day I will build something like this. Let me know your thoughts.

Depression

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I was speaking with a person close to me that has been diagnosed with manic depression. In the past they attempted suicide several times and would say that a lot of their life has been consumed with issues from their past that inhibited to varying degrees socializing, school, work and relationships. We have known each other for almost a decade and as a young person they have undergone a significant amount of change in that time. This recent conversation was insightful because it painted a picture for me of what they think day to day, how they view life and what they want out of it.

One question they brought up was why some people experience less suffering and it cripples them more? Shouldn’t they feel lucky that the extent of their trauma was less?

It’s common for people to judge others and themselves for being deserving or qualification based on how hard their life is. This can happen in a wide variety of situations, some people feel more deserving of a raise because they have been working longer, or an opinion is more deserving because they suffered more oppression in a particular area, or others having more than them, or a a sense of entitlement because of effort given to a bad relationship.

How much you suffer only matters to you. There are no points awarded for how hard your life is, only for the results you develop or the lessons you take away.

There are always two different directions you can take, one that is worse than where you are, i.e. negative thoughts of past experience/jealousy of others and the other is better, i.e. gratitude for what you have or leaned and optimism for what can come.

This person has a past experience that is causing trauma that they are unable to reflect on without being consumed with depression. Depression can be like being in a pit, the farther you go down there the harder to get out of it becomes.

I look to see aspects in myself in others. So when others say they are struggling with certain issues of blocks in their life that they can’t get past because they are unable to forgive themselves or accept the past and let go in order to move on I offer my opinion in a way that also applies to me in the subjects I think I also have the same difficulties.

My portion of the conversation was in dealing with the day to day elements of despair is to let go of the thoughts that take you down a road of further negative thoughts and to look for a thought that brings them just one step better in feeling.

I also suggested that they establish a routine to regularly hold better feeling thoughts so that there is force to break the past condition. They said they are afraid to touch or change their feeling for fear that they will fall into an abyss of depression and not be able to get out. What they hope for is a life of being just ok.

It’s very interesting to have a conversation with someone that tells you my problem is X Y and Z but I can’t think about those issues or my life will fall into ruin. Obviously if a long standing substantial issue with a fundamental part of who we are problem was easily digestible it wouldn’t take long to work through. Additionally our personal preferences make it easy to negatively judge other peoples choices because they are not what we would do. There is to them a lot of value in spending the time to experience, and process difficult growth lessons.

They are doing what I wanted them to do. Their life is significantly better than it was three and four years ago. While I would consider their current state rather neutral on the spectrum the progress they made over the past three years up to now is huge. It’s easy for me to want others to make rapid progress but time is theirs to go on their journey and spend it on the things they choose and i’m happy for them.

 

Trading Bitcoin Manias

This post describes a trading strategy that I am using with digital currencies specifically Bitcoin. The system I use to trade is available online for free at http://algomega.com. To use it you would need to open an account on an exchange and that can take several weeks to complete.

My expectation of gains is high, 50% per year for the next two to five years. In my eyes this is an opportunity for gains if the market continues it’s volatility and or upward trend. Even as a small portion ones invetments this strategy could add a boost to financial independence.

These high expected returns make a big difference. As a comparison, I met with a financial advisor recently about managing my stock and bond investments. I currently hold self directed accounts and do rebalancing myself. The management fees of the financial advisor in the ballpark of 1.5% meant he would be making 65% of the income I wanted to withdrawal on for living expenses. That is a lot. If Bitcoin does go up by 50% per year it could be used to make gains not possible elsewhere at the same level of risk.

This strategy is based on the assumption that the price of Bitcoin will go up over the next few years. Trading the extreme peaks and valleys reduces the risk of buying at an all time high and also grow a cash reserve hedge. It’s pretty clear that Bitcoin has done well in the past but there have been times where people have bought in at a price that quickly dropped and then it took years to recover. This strategy hopes to reduce the likelihood of this happening by indicating times when not to buy when the market is overbought. This strategy also keeps a cash reserve as a hedge so that if the price was to drop unexpectedly you have some assets remaining to buy in or use for other purposes.

I personally believe that there are several reasons the price rise is likely but I won’t cover them all here. Some of the top reasons include the rapid activity of the developer community, improvements to the software and supporting infrastructure and businesses starting to work with digital currencies, the increasing user adoption rates and the gradually reducing production supply of the currency all play parts in my personal assessment.

The mania is a metric that measures rate of change both up and down over time. When the price rises at a rate that is higher than 99% of the past historical trading data then it is seen as a good indicator to sell a portion of holdings as the price and rate of rise always reverts in the other direction. The same applies to drops in price. When the price falls at a rate that is faster than 99% of the historical data it has always followed a reversal upwards and is a buying opportunity. When everyone is selling cheaply people panic but it has historically been the best time to buy.

The trends measured take into account a long term timeline. This means I look at trends based on the largest frequency of price cycling to reduce the risk of being caught out from an unexpected trend reversal. The long term objective is to accumulate bitcoin and trade when the indicators mark opportunities that only occur a few times per year at all. This makes it a low time commitment strategy.

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Here is an example report showing the Bitcoin price (Blue) against the mania (Red and black). You can see that durring the past price spikes the mania levels went above 1.5 and this would have been a good time to sell and definatly not a good time to buy. Durring the downturns when the mania droped below 0.4 the price has over time gone up and this has been a good time to buy in my experience.

A lot of people tend to think that they need to trade daily or weekly on short term trends but this is more work and not something that I do. I originally started out down this road and there is a reason why I don’t do this any more. I wrote a stock and crypto trading bot that used a genetic algorithm to learn an optimal strategy for profitable trading. After letting it run for months and years the bot did make a lot of money but less than simply buying and holding Bitcoin or dollar cost average buys.

This is not financial advice. Any investments you make are at your own risk. The value of Bitcoin or any other digital currency could for unforeseen reasons go to zero. It is important that if you buy into these currencies you are aware and can accept this risk. Only buy an amount that you are comfortable loosing.

 

Money, Hate it and Love it.

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I wanted to share some interesting observations about money. I think a lot of people make assumptions about it that don’t make much sense.

The title is a play on words from the saying love it or hate it but the strange thing about money in particular is that people do hate it and love it at the same time.

People want money but don’t want it at the same time. Everyone wants a lot of money but as soon as people get it they want to get rid of it. If you put a stack of cash under your mattress people would say that is totally irresponsible, someone could steal it or there could be a fire and destroy it. If you instead put that cash in the bank the tellar will tell you you need to invest it because it’s not doing anything for you just sitting there. I.e. you need to trade money for somthing else that isn’t money. Such as a share in a company, a bond as a promise to repay or a physical asset that might appreciate. Inflation destroys the value of money but no one says it like that.

Using money is like putting watter in a bucket with holes in the bottom that everyone thinks of as beeing super important. It’s commical and tragic as most of my friends are spending their entire lives working to make money just to live while not understanding what money is or how it works.

The thing most people don’t know is that dollars are created as dept by banks in the form of loans as they are needed. Most people think that dollars represent the labour they traded to earn them and are simultaniously frustarated at rising prices and living costs. The truth is that while most people work for money, some people / companies / banks just create it from nothing and charge interest. The really tricky part that most people don’t grasp is that because banks issue the currency with interest attached there is always more money owed than exists. It’s like a game of musical chairs. This is why economists are fearfull of deflation in the economy. As soon as the currency supply starts to contract people become fearful and stop spending on non essentials in order to pay down depts. Unfortunately there are more debts owed than there are dollars to pay them off so all available currency quickly dissapears and you end up with a depression.

This means that there is a hidden penalty for holding debts that compounds with greater levels most people don’t realize.

What to do about it? Save as much as possible. There is a sliding scale between your networth being negative and positive. The more negative or in debt you are the more of your life you have to spend paying other people. Conversely the higher you are on the net worth scale the more easily money can come to you. Be on the positive side of the debt equity threshold.

There are a lot of social conditioning beliefs that we have to spend our money and finance debts to the same level as our income. In my area the average house price is $830,000.00 and everyone strives to buy one and finance it with thrity years of mortgadge payments. That is $4000 per month. Half of the payments to a mordgage go to interest charges by the way.  If not house then a car, toys, or vacations etc.

Reducing your expenses has a greater effect on your financial future than increasing your income in some cases.

There are a group of people that save large portions of their income and share their experiences online. They are known as the Fire community and it stands for financial independence and early retirement. Some popular bloggers on the subject include https://www.mrmoneymustache.com (US) and https://www.millennial-revolution.com (Canada). Check them out and leave me your comments.