With the promise of significant earnings on crypto investments, you might consider going “all in” to build wealth. But if your strategy includes dissolving your emergency fund to buy more Bitcoin, you’ll want to reconsider your approach.
Emergency savings play a vital role in your finances, and you could land in financial hot water by going without them, even for the brief moment it takes to refill this fund. Here’s why:
1. You’ll Be Vulnerable to Emergencies
There’s a reason why it’s called an emergency fund; it’s for emergencies. These savings act as a backup when your cash-on-hand unexpectedly falls short one day.
You can’t always predict if or when you’ll face an emergency. Let’s say your car breaks down out of the blue, or you have to rush to the ER after a severe injury. You can tap into this fund to cover the repairs or medical costs without worrying about how you’ll pay them.
If you drain your savings for investing, you’ll be vulnerable if an emergency arrives before you rebuild your fund. While there’s a chance you won’t have to grapple with the unexpected, the stress of knowing your finances are defenceless can weigh heavily on your mind.
2. Borrowing Adds Costs to the Unexpected
Suppose the transmission goes on the car you drive to get to work everyday. This isn’t the kind of repair you can delay until you save up what you need. You have to earn a paycheck, after all.
In times of crisis, borrowing money may be the only way you can cover these unexpected expenses. That’s why online direct lenders provide safety nets for this situation.
You can learn about direct lender loans here, but in a nutshell, they provide online loans in unexpected emergencies. But like any personal loan, these online loans come with rates and terms.
Covering a repair this way makes it more expensive, as you’ll have to pay back your loan, plus interest and other charges. Your savings, on the other hand, have no such fees.
3. Rebuilding Savings Takes Time
The ideal emergency fund contains three to six months’ worth of living expenses. Some financial advisors even recommend eight to 12 months to reflect the volatile times ahead.
With a goal this high, an emergency fund doesn’t happen overnight.
For most people, it results from consistent, long-term contributions that fall over months or even years. Are you willing to bet you won’t encounter an emergency fund in the time it takes you to rebuild?
4. Crypto Can Be Volatile
There’s a good chance you earn back what you invest and then some. You can cash out some of your investments to restock your vital emergency fund.
But crypto is volatile, equally prone to meteoric highs and lows. You risk losing it all — not only buying something that drops significantly in value but also wasting your emergency fund to do it.
The Takeaway
Owning crypto might be the right choice for your finances, provided you don’t use your emergency fund to buy it. These savings play an invaluable role in your finances that protect you from the unexpected. Dissolving this fund isn’t worth the risk of living without them.
