Can crypto serve as your emergency fund?
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That’s a pretty simple answer.
Over the last couple of years, many people have begun to frolic in cryptocurrency in an attempt to increase their wealth. For some it has been a successful attempt, but recently, like the stock market, the crypto market has struggled.
If you own crypto, you may be wondering if it can count as your emergency fund – you know, what you need to cover unplanned bills. But in reality, your emergency fund should consist solely of cash. And although there is nothing wrong with investing in crypto, you should earmark it for purposes other than unforeseen expenses.
Why investments can not serve as your emergency fund
It is not just crypto that should not be your source for emergencies. All investments you have in a brokerage account, such as stocks and bonds, fall into the same category for one big reason – the value can fluctuate.
Let’s imagine you set aside $ 10,000 in crypto or emergency stocks, in just three months the value of the investment has dropped to $ 8,000. If you happen to need money right there and then, you may be forced to liquidate the stock or the cryptographer at a loss – while waiting for things can mean letting your investment value rise to $ 10,000 again.
Therefore, you will repeatedly hear that a savings account is really the best place for your emergency fund. When you deposit $ 10,000 into the bank, that amount cannot go down (unless, of course, you withdraw). If anything, it may just go up, because you want to earn some interest on your money. It is not at all guaranteed to happen with investments such as stocks or crypto, and that is why you can not trust them in a pinch.
How much money should you have in savings?
You will hear different things regarding how much of an emergency fund you need. The old convention was to have enough cash to cover three to six months of significant living expenses. However, in the wake of the pandemic, many financial experts have advised people to save more than six to 12 months of living expenses.
The reality is that the amount of emergency savings you decide to collect should depend on factors such as how confident you feel in your job, how flexible your bills are and whether you have dependents. But let’s say you decide on a $ 18,000 emergency fund worth $ 18,000 that is adequate for your needs. The $ 18,000 should be in cash only. But if you manage to save $ 2,000 extra, there is money you can put outside the bank. If you decide to use it to buy stocks or crypto, that’s fine.
Do not make a mistake you will regret
Investing in crypto is risky. You can be comfortable wearing them. But one risks you should not take is to put your emergency savings into an investment that can lose money. And so if you are serious about protecting yourself from financial surprises, be sure to house your emergency fund in the bank.
