Emergency funds serve as a bailout fund that can keep people afloat in times of emergency needs. The primary purpose of emergency funds is to provide people with financial security through the creation of a safety net to cover unforeseen expenses. Emergency funds are usually kept aside in the form of highly liquid asset or cash. With emergency funds, the need to go for high interest debt options like unsecured loans or credit cards when in financial distress are severely reduced or completely eliminated.
As mentioned earlier, emergency funds are the go-to money you turn to when faced with unpleasant or unanticipated financial surprise beyond your control. Emergency funds should be built overtime and not tempered with at short and unnecessary intervals, and should only be used for emergency purposes.
The key point is to recognize what an emergency financial situation is in order to avoid your emergency funds being spent on non-emergency purposes. For starters, repainting your kitchen is not an emergency; however, replacing your cabinets after a kitchen fire outbreak is an emergency. Going on a summer vacation is not an emergency either, but fixing your car if it develops a fault on the highway and leaves you stranded is definitely an emergency. The key component that differentiates an emergency situation from a non-emergency situation is to consider whether the money is being spent to bring you out of a dire situation in order to survive, or the money is being spent to enhance or facilitate the progression of a previously existing lifestyle.
An emergency fund should contain enough funds that’ll keep you afloat during a time of financial distress until you can return to your feet. You have to decide how much to put in your emergency funds. This decision should be made based on how much you earn and how much your recurring expenses are.
Although you might find it difficult to save-especially if you’ve not been doing in the past-however, saving for emergencies is totally worth the efforts. An emergency fund can be the difference between you going bankrupt, or saving you from a life-threatening medical condition.
Importance Of Emergency Funds to Cryptocurrency Investors
Cryptocurrency investors who have emergency funds usually do better than cryptocurrency investors who do not have emergency funds. This is because cryptocurrency investment is a platform to build wealth, not earn a living. So having an emergency fund helps crypto coin exchange investors make better and informed decisions in dire events such as crypto dips because their livelihood is not tied to their investments.
An emergency fund is a crypto investor’s bailout option when unexpected expenses arise. Unforeseen downturns could force prices of cryptocurrencies to drop, and an investor might be compelled to withdraw his investments when the prices are low, and they could end of selling them for less than they bought them. This can result in huge loses and severely affect their finances.
Emergency funds come in handy when you have an urgent or unforeseen need to take care of. Your water heater could blow up or your car might need an unexpected repair. Crypto investors should ensure they set aside funds for purposes such as these. In other words, don’t invest all you have in cryptocurrency, otherwise what would happen if part of the ceiling of your house fell in because a pipe broke?
Why Cryptocurrency Investors Should Invest Only What They Can Afford To Lose
It is important for cryptocurrency investors to invest only the money they can afford to lose. Don’t invest emergency funds. Simply put; investors shouldn’t put all of their savings or income into cryptocurrency investment if they have no other sources of income to fund their livelihood. What would happen if crypto prices crashes? Taking a loan to invest is also not advisable. If crypto prices crash, the investor might be left with severe losses and plenty of debts to repay.
Beyond that, if you are investing money that you can’t afford to lose, it’s likely that your emotions are going to be tied to it and might lead you to making unhealthy investment decisions.
Emergency funds refer to the money kept aside by people for use during a time of a financial distress or in the event of unanticipated financial expenses which include job loss, major illness, essential home appliance replacement or repair, etc. Cryptocurrency investors should ensure they invest only what they can afford to lose and set aside funds for emergency financial situations.