Keeping your safety net separate
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 6 min
In short
Money for a loss of income or an unexpected bill is commonly kept apart from anything whose price moves. The point is not to prevent losses but to keep daily life running regardless of what prices do. How much that takes differs by person, and this site names no figure.
Key points
- Money for sudden costs or lost income belongs somewhere its value does not move
- How much depends on how stable your income is, your household and your fixed costs
- Having it means a downturn does not force you to sell to cover living expenses
- It still does nothing to prevent losses on what you did invest
Definition
Money held in a form whose value does not fluctuate, set aside against lost income or unexpected expenses.
The job of this money is to keep your living costs and your volatile holdings apart. Hold assets while running thin on cash and any setback — redundancy, illness, a broken appliance — forces a sale at whatever price happens to prevail. Not choosing when you sell is itself a disadvantage. Keeping a reserve at least removes the case where you sell to eat.
The amount cannot be generalised. An employee and a self-employed person face different prospects when income stops; the number of dependants and the size of fixed costs like rent and insurance change it again, as do owning versus renting and whether family could help. This site avoids naming 'so many months' because that number means something different for each person. Start from your own fixed costs and how long it would realistically take to recover.
Where it sits matters too: it should not fluctuate and it should be withdrawable at once. Crypto assets and stablecoins do not suit this purpose. Even something designed to hold a fixed value can fail to hold it if its issuer or backing runs into trouble, and a halted exchange means you cannot withdraw at all. Money that supports your life is better kept clear of both price moves and operator risk.
To be clear, a reserve is not a loss defence. Holding one does not stop the crypto you bought from falling. What it does is keep a loss from spilling into your daily life. How much to hold is a decision for your own circumstances.
Watch out for
- · This is not investment advice and recommends no amount or number of months
- · A reserve does not prevent losses on what you invested
- · Crypto assets, stablecoins included, offer no guarantee of value or of withdrawal, so they do not suit this purpose
Frequently asked questions
Must I finish building a reserve before I buy anything?
This site does not prescribe an order. Understand only the structure: with little cash on hand, an unexpected expense forces a sale regardless of the price at the time.