6 Things You Must Do to Avoid Losing Money in Cryptocurrency Trading

In business, there will always be losses. Cryptocurrency markets are no different. Losses are frequent here. However, with a bit of effort, you can avoid these losses. Here is how.

#1 Keep Your Wallet Private

You don’t want to share your wallet address with anyone, especially not publicly on social media. That includes the people you know and trust. If someone gets ahold of your public key, they can see all of your transactions and balances, which is a huge security risk.

Similarly, if someone gets ahold of your private keys (which may or may not be stored on an exchange), they will have full access to all of your coins in that wallet. It is also vital to make sure that no one has access to any device that stores private keys or passwords for cryptocurrency wallets. And finally, never give out personal information such as phone numbers and email addresses when it isn’t necessary!

#2 Diversify

The first and most obvious thing you need to do is diversify your portfolio.

If you have one cryptocurrency in your portfolio, then that’s all that matters—and it is all that can matter. That single coin will either go up or down by a significant amount, and there’s nothing you can do about it. If it goes down, then you’re on the hook for the loss because of how much of your money was tied up in the investment.

But suppose instead that you spread out your investments among many different coins and tokens. Now, what happens if one of them goes belly-up? Well, if it does happen to fall sharply in price (which hopefully doesn’t happen often), then only a fractional portion of your overall investment will be affected. That will help keep losses manageable compared with what could have happened had everything been tied up in just one currency at any given time!

#3 Understand the Income and Tax Implications of Fiat Conversions

If you make money by selling cryptocurrency, the IRS considers it income. Capital gains taxes are calculated based on how much time has elapsed since you first bought the currency. If a year or less has passed, you report your earnings as ordinary income and pay a flat rate of 20%. If more than one year has passed, your capital gains tax rate is based on your ordinary income tax bracket.

For example: Let’s say that in January 2019 you bought 1 bitcoin at $20,000 and sold that same bitcoin in March 2019 for $30k (a 50% profit). That would mean the capital gain would be $10k ($30k – $20k). Because this was your only cryptocurrency transaction last year, the capital gain would be taxed at 20% instead of the regular 23% marginal rate because you qualify as an individual taxpayer under current law who earns less than $38k per year in unearned income.

#4 Never Sell Too Soon

It’s tempting to sell your investment as soon as you see a profit, but it can be tough to predict which coins will go up and down in cryptocurrency value. You might be able to sell at $2,000 each for a coin that is worth $5,000 today. But if the cryptocurrency prices go up tomorrow and it is now worth $10k per coin, you’ve missed out on substantial gains by selling too early!

Don’t sell until after your initial investment has reached its full potential (and preferably further).

#5 Research Before Investing in ICOs

Understanding the company and the team behind an ICO is a huge step in avoiding scams. You should be able to find information about them on their website, LinkedIn pages, Twitter accounts, and more. The more information you have access to, the better idea you’ll have of whether or not they’re legitimate.

You’ll also want to research the white paper itself. If you’re investing in something like Ethereum or Ripple, it might not make sense for them to release their white paper. That is because these are already established projects with plenty of information out there (although some companies do). But if it is a newer project that is just starting up and has no other information available yet besides its website—this is where doing your due diligence comes into play!

#6 Stop Investing Money You Cannot Afford to Lose

One of the best things to do to protect your money is to avoid investing anything you need shortly. You should never invest money that will be needed for a crucial purchase or bill, like a mortgage or car payment. That also includes putting money into cryptocurrency trading if you have other expenses coming up, as it could cause financial problems for you down the road.

As long as you stick to these points, you do not have to worry about losing money in the crypto market.

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5 Personal Financial Tips for Freelancers

Being a freelancer comes with a lot of perks. However, it also comes with many responsibilities. From the financial side of things, you have to be prepared to handle all of the nuances involved with managing your money.

Mastering Your Money as a Freelancer

Freelancing offers a wealth of opportunities, freedoms, and benefits that you simply don’t have access to as a W-2 employee working a 9-to-5 job for a large corporation. 

You’re basically able to set your hours, choose your clients, and build the kind of business you want. But to be successful, you also need to manage your finances well and make sure you’re setting yourself up for long-term success.

As you think about managing money as a freelancer, here are several helpful tips to keep in mind:

1. Open a Separate Business Account

If nothing else, make sure you follow this first tip. Open separate checking accounts for your personal use and business use. This is extremely important and will make accounting so much easier.

When you have a business account, everything runs through it. This includes every business expense and all earnings. This allows you to reference one set of statements when balancing your books or filing taxes. 

It also protects you. If you run an LLC, you’re required to have your own dedicated account. Even a single personal transaction on your business account (or vice versa) can do what lawyers call “pierce the veil” and compromise the integrity of your LLC.

2. Build an Emergency Fund

When you’re a freelancer, you have to plan for peaks and valleys. Unlike a salaried employee,  you can’t count on the same consistent paycheck month after month. Some months will be feast and others will be famine. One way to account for these fluctuations and protect your family’s finances is to build up an emergency fund. 

An emergency fund is basically three to six months of cash reserves that you set to the side in case you need it. It’s like a cushion that you can access when there’s an emergency or bill that you can’t pay. (The key is to fill the emergency fund back up as quickly as you can after drawing from it.)

3. Keep Budgets

Budgeting may sound boring, but it’s necessary. Be meticulous about keeping budgets in both your personal life and business. You’ll have to decide what kind of budget you want to keep, but it’s a good idea to build what we’ll call a “reflective budget.”

A reflective budget is a budget that’s built on the previous month’s income (it reflects what you earned in the past). In other words, if you made $10,000 in May, you use that as your top-line budget number for June. Then if you make $7,000 in June, you budget $7,0000 for July, etc. When you use this approach – as opposed to one that projects your future earnings – you ensure you’re always budgeting correctly down to the penny.

4. Know Your Options

Make sure you know your options when it comes to things like financial relief and bankruptcy (should you find yourself in a situation where you’re struggling to keep up).

“Most freelancers don’t realize that if you’re a sole proprietor – meaning you and your freelance business are legally the same entity – you may actually have access to both Chapter 7 bankruptcy and Chapter 13,” bankruptcy attorney Rowdy G. Williams says. “But if you have an LLC, Chapter 11 is your only option.”

Hopefully, you don’t reach a point where you need to explore bankruptcy, but it’s nice to know there are always options. 

5. Pay Quarterly Estimated Taxes

As a freelancer, there’s nobody taking taxes out of your paycheck each month. This means you are 100 percent responsible for paying your own taxes. And guess what? The IRS doesn’t want you to wait until the following April to settle up. They want their taxes along the way.

Freelancers are required to pay quarterly estimated tax payments. You can find the IRS schedule here. Meet with your accountant to figure out a plan. However, as a general rule of thumb, you’ll want to set aside roughly 25 percent of your monthly earnings for estimated taxes.

Set Yourself Up for Success

It’s not enough to bring on a new client or close a new deal on a high-ticket project. In order to be successful as a freelancer, you have to master the art of managing your finances and maximizing your earnings. Let this article nudge you in the right direction, but never underestimate the importance of partnering with the right financial professionals and advisors!

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