Do you have a keen interest in cryptocurrency, keeping up to speed with the latest digital currency news, and perhaps even making some crypto investments? If so, then you may be wondering how you can use cryptocurrency to manage your personal finances.
We’re not just talking about investing in a few Bitcoin shares – managing your personal finances using cryptocurrency can involve a dramatic financial overhaul, including transferring your salary into digital currency and even saving up your cryptocurrency to pay toward your retirement.
But is using digital currency in your personal finances a wise choice? How do you even go about it?
Read on to find out more, and to discover if this could be a financial option you want to pursue.
Start off small
If you are considering using a cryptocurrency such as Bitcoin in your personal finances, it can be beneficial to start off gradually. Investing in a small amount of Bitcoin on a regular basis, and then using them to make some minor purchases, is a good idea – for example, buying some goods at a store (whether virtual or brick-and-mortar) or making a deposit at an online casino. These small purchases will allow you to see how cryptocurrency transactions work in practice.
This kind of firsthand experience will give you an idea of what it means to use cryptocurrency as part of your personal finance management system. Whenever you make a major financial decision or transition, it’s sensible to ease yourself in.
For example, you may have read that some companies are now paying their employees in cryptocurrency, which can then be converted back into dollars, and this may seem like an appealing notion. However, it’s vital that you bear in mind that this degree of investment in the crypto world can be incredibly risky. The volatility of digital currencies is very high and their worth can plummet almost overnight.
If your cryptocurrency is stored with a crypto platform, rather than in your own e-wallet, you also run the risk of losing all of your digital currency if that crypto platform is forced to file for bankruptcy, which has happened more than once over the past year or two. Of course, if you do keep your cryptocurrency securely stored in your own digital wallet, you have the advantage of knowing that money is safe from any economic fluctuations.
Check the legislation
Because cryptocurrency is still so new, the legal framework surrounding it is still in a process of development. As a result, it’s important that you stay abreast of the latest legislation dedicated to cryptocurrency; in particular, learning how to make records of your profits and losses, and how to report digital currency on your tax returns.
Hiring a financial advisor with cryptocurrency knowledge could be very helpful as you navigate this new financial terrain. Your advisor can help you make crucial decisions, including how much cryptocurrency to purchase, how often you invest in new amounts of cryptocurrency, what you use it for, and how you store it.
Is cryptocurrency the future?
While some people may feel that cryptocurrency is the way forward, and envision a world where digital currency replaces sovereign monies, the fact is that, currently, experts are advising caution when it comes to using cryptocurrency. Before diving right in and investing a great deal in digital currency, it’s advisable to start off with some small transactions, and build your confidence – and your crypto financial profile – from there.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
