How much money should you put into Bitcoin each month?

Sam Blackmore| Jul 8, 2019

General

When people started using Bitcoin in the early 2010s, cryptocurrency was a niche interest. Many of the first Bitcoin miners and developers became wealthy in a short amount of time after prices began to rise. Now, big money investors are starting to get in the game. Derivatives trading market CME Group and global investment bank JP Morgan are both saying that large investment firms have started pumping money into cryptocurrency markets. This data indicates that “smart money” has fueled the recent Bitcoin price spike.

The recent surge of institutional interest is good news because it means that professional investors have finally realized that cryptocurrency is here to stay. However, Bitcoin isn’t only for rich people and you don’t need to invest a large chunk of money to benefit from it. In fact, given the volatile nature of Bitcoin price swings, we think a more conservative approach makes more sense for most people. That’s why we encourage our users to invest small, affordable sums each month. This type of investment strategy is known as Dollar Cost Averaging, or DCA.  

Related: Why you should Dollar Cost Average Cryptocurrency

Learn more about the benefits of DCA link above or continue on to learn how much money you should invest in Bitcoin each month after you open a savings account with Vimba. 

Setting up a savings budget

The first thing you need to do before you create a savings plan is to create a budget. Most financial experts agree that 20% of your salary is a good savings goal.

According to the Office For National Statistics, the average salary in the UK in 2018 was £29,588. If 20% is the goal, the average Brit should set aside roughly £500 each month. New Zealanders earn an average of NZ $4,341, which means that saving about NZ $870 is a good idea for most people. 

Everyone would like to be able to save 20% of their monthly income. The question is: how does one get there?  Here’s a quick look at what three different finance experts suggest.

Elizabeth Warren’s 50 / 30 / 20 rule

When US Senator Elizabeth Warren was a law school professor, her speciality was bankruptcy law. Her academic studies in this area inspired her to write All Your Worth: The Ultimate Lifetime Money Plan in 2005. In it, she outlines a general rule of thumb that can help anyone reach financial freedom. The basic rule is to divide after-tax income into needs, like rent or mortgage payments. Another 30% can be spent on wants, such as luxury goods, vacations and entertainment. The final 20% should be allocated to some type of savings plan. The key advice Warren offers savers is: stay balanced. If you keep a big picture view of your finances in mind, you’ll be able to make smarter choices.

The Barefoot Investor follows a 60 / 20 / 20 plan

Australian financial expert Scott Pape otherwise known as Barefoot Investor offers similar savings advice, only he believes that allocating 60% of your personal budget to needs is a more realistic goal. Like Warren, Pape believes that everyone should strive to save at least 20% of their monthly income. He also urges his followers to avoid bad financial deals and pay off any credit card debts or loans first before starting a savings program.

Heena Mehta’s “cookie jar” savings strategy

Heena Mehta, the founder of the India-based personal finance platform Basis, also agrees that 20% is a good savings goal. At the same time, she admits that it’s not a reasonable figure for many. She advises that those that can’t afford 20% should split up their monthly income into various “cookie jars.” One jar is for needs, while others are for emergencies, investments wants and whatever else you intend to spend money on each month. According to Mehta, those that spend time thinking about finances on a regular basis tend to make better financial decisions.

The importance of setting specific savings objectives

As Heena Mehta of Basis suggests, an excellent way to stay organized when you save is to create dedicated accounts for each savings objective. Once you’ve set up your accounts, you can look at your portfolio and know where you stand in a glance. 

It’s useful to create different names for each savings account that you create. For example, you can label one account “holiday savings” and name another one “rainy day fund.” This will help you stay on top of your finances because you’ll be able to instantly see how much money you’ve allocated to various savings goals. Seeing all of your accounts begin to grow will make you feel good and provide the motivation you need to keep going.

Cryptocurrency vs. fiat: how much to invest? 

Most personal finance advisors say to save 20% of your monthly income. However, the question of where and how to invest these funds is another subject entirely. 

In the last blog post, I explained five reasons why going long on Bitcoin makes more sense than ever. With Vimba, you can set up small, automatic Bitcoin investments without exposing yourself to the risk of investing a large chunk of money all at once. The minimum commitment is just $20 per month. That puts cryptocurrency investing well within the range of most peoples’ investment budgets. 

Small cryptocurrency investments will accumulate over time. Even putting away just 1% or 2% of your monthly earnings is more than enough to share in the benefits of cryptocurrency industry growth.

In addition to saving cryptocurrency, you may also want to consider setting aside some fiat money each month. A fiat savings account is a good vehicle for an emergency fund, for example. Most banks will let you take money out of your savings account for free, as long as you don’t exceed a certain number of monthly withdrawals. Check with your bank to see what types of savings accounts it offers. 

After you create your fiat savings account with your bank, you can set up automatic transfers for it as well as for your Vimba account and your other investments. In this way, you can automate your entire savings strategy and automatically put a percentage of your income toward all your investments.

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