(AP) — Investing in cryptocurrency can be as easy as a few taps on your phone, and with crypto all over the news and coming up in conversations with friends, it’s tempting to dive right in. However, depending on your financial situation and appetite for investing risk, crypto might not be an appropriate investment for you right now — or ever.
“I am the biggest crypto hippie you’ll talk to in a very long time,” says Tyrone Ross, CEO of Onramp Invest, a cryptoasset platform for registered investment advisors . And yet, he cautions against it. “I don’t think the general public should be investing in crypto.”
1. PUT FINANCIAL SAFEGUARDS IN PLACE
First and foremost, you need to prepare for those times when things don’t go as planned.
Over the past year, workers who lost income because of the pandemic had to tap into savings, take on debt or enter into hardship programs to afford their bills. This time has been a stark reminder of the importance of having an emergency fund.
“When you’re young, you can feel like Superman or Superwoman, but when the bubble happens, you could easily be out of a job for nine to 12 months,” says Theresa Morrison, a financial planner in Tucson, Arizona. “Don’t underestimate systemic shocks to the market.”
Morrison recommends saving up six months of living expenses if you’re single, or around three months if you share expenses with a working spouse or partner. But stashing away even a few hundred dollars can be helpful when you’re faced with an unexpected expense . And if you have any high-interest debt, like credit card debt, paying this down can further strengthen your financial position.
Review your insurance coverage, too, because these policies can provide much-needed money during difficult times. Life insurance can be especially important if you have dependents.
2. SAVE AND INVEST FOR FUTURE PLANS
Once you have money set aside for emergencies, begin thinking about your short-, medium- and long-term financial goals. Retirement is, of course, a big thing to save for, so contribute to retirement accounts (especially if you have access to a plan with an employer match). But set specific savings goals for other major life steps.
“Most people want to travel every year, buy a house in 10 years, get married in 10 years. These things cost money,” Morrison says. “Put down how much it’ll cost in today’s terms and figure out how much to save out of your paycheck every month. From my experience, that alone can be $1,000 a month.”
3. GET EDUCATED ABOUT CRYPTOCURRENCY
You’ve got the money and you’re ready to jump on the crypto bandwagon, only you have no idea how someone even buys crypto. Or how it will fit into your overall financial plan. Or if it’s too risky for you.
Time out. Don’t do anything with your money that you don’t understand. Dedicate some time to learning everything you can about crypto. Understanding the mechanics is important, but so is learning what kind of investor you are, because that also affects the kinds of investments that would be a good fit for you.
