Financial planning involves creating strategies to properly allocate, save, and use financial resources like cash, stocks, trusts, and bonds. Many people believe that a financial plan is useful when dealing with cryptocurrency. Is there truth to this statement? Cryptocurrencies refer to digital currencies not issued by the government but are native to the online world, wherein people and organizations “mine” these currencies, and use them as a global means of payment.
In this post, you’ll learn the relationship of good financial planning and cryptocurrency, so you can make the right decision whether or not to use cryptocurrencies to achieve financial stability.
Modern or Digital Way to Financially Plan
Satoshi Nakamoto made using a digital cash system a reality. A cryptocurrency is considered a digital asset that is specifically designed as a medium of exchange using strong cryptography for the security of financial transactions, controlling additional units, and transfer of assets verification. It’s a modern or digital way to financially plan with the highest security features that accountants, financial experts, and industry leaders can use to help individuals and companies successfully manage finances.
But there are still external risks involved with cryptocurrency transactions, such as hackers finding ways to encourage individuals and business owners to send cryptocurrencies to suspicious accounts through phishing and other forms of cyber attacks. That’s why you need trusted and reliable advice from qualified financial advisers like Capstone Financial Planning before you make any binding financial decisions.
Here are a few cryptocurrency-related terms and concepts to help you understand and become more proactive in financial planning using cryptocurrencies:
- Mining: It refers to the mechanism by which payment or other business transactions are approved and later added to the public ledger. Miners build the “blocks” in a blockchain system to process and validate transactions. Also, mining refers to the way new units of cryptocurrencies, like Bitcoin, are released.
- Blockchain Technology: Blockchains are open distributed ledger wherein entries are entered, but data are never erased. It is the technology that cryptocurrencies use to transactor a system for digital interactions without requiring a trusted third party. The ledger is replicated in a blockchain system with identical databases that are hosted and maintained. A modification in one copy updates all copies.
- Initial Coin Offering or ICO: It’s an unregulated way for newbies to raise funds for a new cryptocurrency venture. Financial planners should differentiate between ICOs and cryptocurrencies the securities and cryptocurrencies such as Bitcoin, Ethereum, and Litecoin, to help diversify client portfolios.
Cryptocurrency Is Fast and Global
After confirmation of payment or any cryptocurrency transaction, it can‘t be reversed. Once you send money, even to a scammer, nobody can help you. No third party or staff can help you, so financial planning is essential.
Here are the good-to-know facts about cryptocurrency:
- A transaction is propagated instantaneously in the network. Transactions are confirmed entirely indifferent of physical location.
- Cryptocurrency funds are all locked in a highly secured public key cryptography system, so the owner is the only one who has the private key to send cryptocurrency.
- When using cryptocurrency, you don’t have to ask permission from anyone. You download and use software to send and receive cryptocurrencies, like Bitcoins. Without proper financial planning, you might unnecessarily spend your Bitcoins because of the ease of doing transactions.
Financial Planning Is Valuable in Crowdfunding
Cryptocurrencies are used in crowdfunding or sourcing funds from different individuals or groups to be used in capitalizing a business or supporting a common cause. You need a financial planner to manage cryptocurrencies for your crowdfunding business.
Here are the advantages of financial planning when dealing with cryptocurrency:
- A financial planner can help you validate all transactions you enter before the data are submitted and approved.
- Financial planning can help you allocate funds to the right individuals or groups to help you achieve your financial goals.
- Financial planners can help you manage your finances, both cryptocurrencies and traditional currencies.
- While the blockchain technology is secure, you can’t be confident without human intervention or a trusted person managing your finances, so you need a financial planner to help you.
Financial Planning Is Essential In Trading Cryptocurrency
For beginners, you can spread your bets then increase your investment when you can get into trading on a cryptocurrency exchange. You can buy low then sell when the value is high. However, creating your trading portfolio is not easy; that’s why you need a financial planner.
Cryptocurrency investment provides a more potential reward as compared to other investment opportunities. Ignoring cryptocurrency is disastrous and so is trading, so if you want to become a good trader, seek a good financial planner who can help you become successful. Is it worth it to hire a financial planner when trading cryptocurrency?
Here are the important benefits of financial planning in trading cryptocurrency and some helpful tips:
- Protect your cryptocurrency investment with a financial plan with the help of an experienced finance professional.
- A financial planner can help you build your cryptocurrency portfolio.
- Financial planners follow basic rules when trading cryptocurrency to reduce risks.
- Do not panic when crashes occur but you can avoid them by selecting the right coins.
- Just hold on for a while before selling or buying coins.
- A financial planner can help you split your investment in trading and another part for your savings for two years.
- While you want to make profit, don’t be a greedy trader because you’ll end up being a broke trader.
- You can minimize the risk of trading by hiring a financial planner with experience in cryptocurrency trading. Choose one who has the right knowledge, skills, and attitude to ensure successful trading outcomes.
When dealing with cryptocurrency, financial planning is crucial. It’s also the same when you’re dealing with actual cash or money in traditional banks. Whether you’re a private individual or you own a small business or a company, a financial planner can help you achieve your financial goals.