Planning reduces uncertainty in our lives. In other words, a certain discipline is necessary to be able to live a fuller life. Which, at first glance, might seem counterintuitive, because many associate spontaneity with good living and discipline with sacrifice. With experience, however, we learn how beneficial it is to leave that naive thinking behind to adopt much more mature positions. In many cases, instant gratification has to be delayed for our long-term well-being. Self-control is, to a large extent, the key to success.
For the purposes of this article, we limit ourselves to talking only about financial goals. In other words, our goal is quantifiable. We are talking about numbers. Specifically, we are talking about money.
First of all, our goal is to cover our daily expenses. That requires defining a budget. And this budget must be covered with our income. Income can be income from work or income from capital.
Second, after covering our expenses, our goal is to grow (at a reasonable pace and assuming reasonable risk). Now, if our income is greater than our expenses, we can accumulate capital. Then, that capital can grow to the extent that we invest it well.
Which brings us to the concept of “risk”. Regarding risk, the first thing we must recognize is that we live in a world abundant in uncertainties. Nothing is 100% safe in this world. We may lose our job. We may lose money from our investments. Thus, All intelligent planning must include a protection mechanism against these possibilities.s. Here is the importance of creating an emergency fund.
Most financial experts recommend saving three to six months of emergency expenses. That is assuming that we have health insurance, access to credit and other provisions of this nature. Otherwise, our emergency fund would suddenly have to be bigger. In short, by covering the risk, we reduce uncertainty. And, that way, we can sleep a little more peacefully.
Why don’t some people have an emergency fund? On the one hand, we have people whose income does not exceed their expenses. In this case, the money is only enough to cover the expenses of the month. And there is nothing left for savings or investment. LThe most elementary solution to this problem is to earn more and spend less. Then it would be necessary to open a separate savings account and make sure it is easily accessible in case of need. It is best to set a monthly goal to save a specific amount and make sure you stick to it.
On the other hand, we find the investor eager to grow and who does not have the patience to maintain an emergency fund. Now, it is not very smart to have an investment portfolio made up entirely of highly volatile assets, and take this as our emergency fund. Let’s remember that The objective of an emergency fund is to reduce uncertainty in the context of strategic planning. So, it is not very sensible to create an emergency fund made up of cryptocurrencies, for example. In the case of an emergency fund, the most important thing is stability and liquidity. Growing up is not what you want. Because this fund is not about that.
It is not uncommon, however, to hear that Bitcoin is a “safe haven.” Apparently, according to this position, there is no safer asset than Bitcoin due to its characteristics. The defenders of this position do not hesitate to give reasons to justify this. The scarcity of supply, the unreliability of the code, decentralization, self-custody, etc. So basically what we have is digital gold. AND This “security” is quite similar to the security offered by gold. After all, anyone can bury their gold in the safety of their own backyard.
But, this “safe haven”, mentioned by the militancy, must be understood in context. It usually refers to systemic risk from a conservative and libertarian point of view. It does not necessarily refer to financial risk. Or, put another way, if you are a believer in classical liberalism, in the benefits of the invisible hand and in the harmfulness of state intervention, surely you think that the economy in the hands of “Keynesian progressivism” is on the brink of collapse. Thus, a citizen and digital currency that shares the characteristics of gold will be an ark of salvation during this apocalypse.
This explanation pleases the idiosyncratic investor. But it does not specifically address the issue of financial risk. That is to say, it does not solve the problem of the most pragmatic investor. The main occupation of many is not to reform the world but to put bread on the table. Suppose we create an emergency fund and, after a short time, the price of Bitcoin falls by 30%. The next day, we lose our job or have a health problem. At that point, we found that Bitcoin did not provide the security we needed. In that case, the security we needed was the security of stability. In other words, cash is king in uncertain times.
What is my point? Well, the emergency fund must be established in dollars. If your expenses, debts and commitments are in dollars, the most sensible thing to do is to use that unit of account for the emergency fund. If we allow ourselves to be swayed by fanaticism, we could be tempted to underestimate the risks associated with an asset as volatile as Bitcoin. In other words, if Bitcoin is such a safe asset, there is little point in managing risk. What risk?
The problem with bigotry is that it is based on a false sense of security. The fan never doubts. For the fan, there is no uncertainty. Therefore, place all your eggs in one happy basket of life. If the dollar is the enemy and BTC is the savior, the only risk is not having BTC. This last sentence could be very attractive for Twitter. However, it is not very smart when it comes to managing risk in our personal finances.
Cash adds stability and predictability to our portfolio. You don’t have to have more than you need. But neither is it very convenient to have less than prudence advises. On Twitter, we can dream. On Twitter, utopia is possible. And of course, it’s very easy to be a hero in a tweet. But, in matters of personal and family economy, we cannot afford to take more risks than necessary in the name of an ideological crusade. Our great priority is to take care of our pocket. The creation of an emergency fund in dollars is essential. It is undoubtedly a first step. Then from there, the sky is the limit.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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