Investing in cryptocurrencies may be as simple as a few taps on your phone, and with cryptocurrency making the rounds in the news and in talks with friends, it’s tempting to jump in. Crypto may or may not be suited for you right now – or ever – depending on your financial circumstances and appetite for investment risks.
Tyrone Ross, CEO of Onramp Invest, a cryptoasset platform for registered investment advisors, says, “I am the biggest crypto hippy you’ll talk to in a very long time.” Nonetheless, he advises against it. “I don’t believe the ordinary people should invest in cryptocurrency.”
Consider your finances to be an ice cream sundae with crypto on top. It’s only a little part of the total sundae, and not everyone wants one. And before you take that cherry out of the jar, you’ll have to put the rest of your dessert together.
In non-ice-cream terms, this means laying a solid financial foundation and learning everything there is to know about cryptocurrency before investing any actual money.
- Establish financial precautions
First and foremost, you must be prepared for instances when things do not go as to plan. Workers who lost their jobs due to the epidemic had to dip into their savings, take on debt, or enroll in hardship programs to pay their payments over the last year. This experience has served as a harsh reminder of the need of maintaining an emergency fund.
“When you’re young, you can feel like Superman or Superwoman,” says Theresa Morrison, a financial advisor in Tucson, Arizona. “However, when the bubble bursts, you could easily be out of a job for nine to 12 months. Systemic market shocks should not be overlooked.”
If you’re alone, Morrison suggests saving six months’ worth of living expenses, or three months if you share expenditures with a working spouse or partner. However, even a few hundred dollars saved can come in handy if you’re faced with an unexpected bill.
Furthermore, if you have any high-interest debt, such as credit card debt, paying it off will help you improve your financial situation. Examine your insurance coverage as well, as these plans can provide much-needed funds in times of need. If you have dependents, life insurance is very crucial.
- Put money aside and invest for the future.
Start thinking about your short, medium, and long-term financial goals once you have money set up for emergencies.
Contribute to retirement accounts since retirement is a huge item to save for (especially if you have access to a plan with an employer match). However, for other important life events, make particular financial targets.
“The majority of people aspire to travel once a year, purchase a home in ten years, and marry in ten years.
These items are costly “Morrison explains. “Calculate how much it will cost in today’s dollars and how much you should save aside each month from your paycheck. That alone, in my experience, can cost $1,000 (€1,164) each month”.
“You must go through a process to decide if this new asset class is right for you. So, what are your plans? What is your age? What are your objectives? How well-versed in technology are you? Do you realize what it means to own these things but not have them insured? Who in your family knows about these stuff in case something happens to you?”
Ross explains. “People don’t do their homework before investing their money in something. I realize it’s not the most exciting response, but it’s the truth “..
- Become knowledgeable about cryptocurrency.
You’ve got the cash and are ready to join on the cryptocurrency bandwagon, but you have no idea where to begin.
Alternatively, consider how it will fit into your entire financial strategy. Or if you don’t want to take the chance.
Take a break. Don’t waste your money on something you don’t comprehend. Make time to learn everything you can about cryptocurrency. Understanding the mechanics is critical, but so is determining what type of investor you are, as this influences the types of investments that might be appropriate for you.
Start small if you still want to dabble in crypto.
After you’ve figured out how it all works, you can start thinking about putting some of your extra cash into crypto (after you’ve paid your expenses and met your monthly savings objectives). However, make your entire investment small and reasonable. Ross advises saving up to $500 (€582) for a down payment. This manner, even if you lose everything, you’ll still have a budgeted amount.
“Consider cryptocurrency to be dead money if you invest in it. You’ll never get your money back, “Danny Lee, a Denver financial advisor, agrees. “At the end of the day, it’ll be a speculative investment,” says the author.