What’s bitcoin?

Q. What’s bitcoin? — B.P., Cranston, Rhode Island

A.

Launched in 2009, bitcoin is the first and most well-known cryptocurrency. (There were recently more than 12,000 cryptocurrencies. In contrast, there are only around 6,000 stocks listed on the New York Stock Exchange and the Nasdaq.)

A virtual and digital currency, bitcoin is not backed by the U.S. government or any other entity, and no central organization regulates it. Its value is based on what people think it’s worth, and that value has soared over the past decade or so — with much volatility. The price of each token peaked above $67,000 in late 2021 and was recently around $47,100. It’s meant to be used as a currency, but many view it as an investment.

If you’re interested in bitcoin or other cryptocurrencies, read a lot about them, pro and con, as there are more than a few risks. It’s perfectly sensible to just stick with stocks or other conventional investments for long-term wealth building.

Q. Are bank accounts insured? — I.N., Kaysville, Utah

A.

Most bank accounts are insured by the Federal Deposit Insurance Corp., and credit union accounts by the National Credit Union Administration. The FDIC insures checking, savings, money market accounts and CDs for up to $250,000 per depositor — at each bank, for each account ownership category. Some entities offer more coverage than that while some don’t offer FDIC protection at all, so make sure your bank is among those covered.

The FDIC does not protect stocks, bonds, mutual funds, crypto assets, safe deposit boxes (and their contents), life insurance policies and annuities, among other things.

Control your financial life

It can be hard to get ahead financially when you don’t have a handle on where all your household income is going. So consider setting up a budget. It might sound excruciatingly boring, but it will be rather exciting when it starts delivering results. Budgeting can help you achieve your financial goals, such as a comfortable retirement. Here’s how to build a good budget:

Start by listing your total annual income — including all paychecks, along with any other income, such as from side gigs or rental properties.

Next, track where all your dollars go. Jot down every regular (e.g., weekly, monthly, annual) expense you can think of. These might include rent or mortgage payments, debt repayments, utility and telecom bills, insurance premiums, taxes and so on. Then go through your credit card statements and bank statements to find any you missed. Those statements can help note most of your other spending — such as restaurant meals, concert tickets, clothing or gifts. Try to categorize and total these expenses; you might find that your household spent, say, $5,000 at restaurants last year. (Spreadsheets help here.)

Now think of all your financial goals, and how much you will need to sock away each month to reach them. For example, you might determine that in order to amass the nest egg you think you’ll need, you will have to save and invest $1,200 per month.

Putting it all together, you’ll see how much money is coming in and out each month — or year. (It can be helpful to use monthly figures for income and expenses, so adjust various figures as needed, such as dividing your annual home insurance bill by 12.) Take your income and subtract all mandatory and high-priority expenses, such as food and retirement savings. With what’s left, you can plan your discretionary spending. If there isn’t enough, see what spending can be trimmed — perhaps some streaming services or a lightly used gym membership.