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Should You Invest in Bitcoin With Your Stimulus Check?

By Charlene Rhinehart, CPA - Mar 20, 2021 at 5:05AM

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Bitcoin profits are very alluring, but don't give up your stimulus check without considering these items.

Bitcoin (BTC -0.20%) has rewarded investors with stellar returns over the past year, making it enticing for newcomers to jump in and see how much they could "win." So far, the cryptocurrency has soared to new record highs every month of 2021 as more investors flock to Bitcoin to capture diversification and opportunity.  

Now, there's another incentive that makes investing in Bitcoin an option for those who haven't dived in yet or those who simply want to add more to their portfolio: $1,400 stimulus checks. On March 11, President Joe Biden signed the American Rescue Plan Act, authorizing $1,400 stimulus checks to eligible taxpayers and dependents of all ages. 

If you're tempted to spend your entire stimulus check on Bitcoin, here are a few items you should consider before your $1,400 leaves your checking account. 

A cascade of gold coins embossed with Bitcoin symbols.

Image source: Getty Images.

Check on your financial house 

It's easy to wake up, see thousands of extra dollars in your account, invest in the hottest assets, and kick all your financial responsibilities to the curb. But don't be so quick to make moves in the market when you haven't taken care of your financial affairs.

First, make sure you've paid all your bills and have some funds set aside to carry you for the next couple of months. The worst thing you could do is throw all your money into Bitcoin, watch the price fall a few weeks later, and be forced to sell at a loss because you're in dire need of the funds. 

Take some time out to look at your income and expenses over the next few months. Then, look at your assets and debt. Are you in the best position to invest right now? You can review the numbers yourself or work with a professional who can help you reveal blind spots in your financial plan. 

Understand your investing goals and the potential risks

If you're ready to invest, you should identify your investing goals in order to create the best plan for you. Don't just invest in Bitcoin and other assets because everyone else is doing it. The clearer you are about your investing goals, the easier it will be to choose assets that align with them. 

Then, consider the risks. Bitcoin has delivered big profits, but the journey hasn't always been filled with consistent victories. This cryptocurrency is very volatile, quickly undergoing daily dips and climbs that can come when you least expect it. So, if you need the money next month, you may be taking on a big risk. Also, you might be stuck with a huge tax tab that could eat into your profits if you sell too soon and are in a high tax bracket. 

Start with a little bit of money 

If you've checked the box on the above items and understand what you are getting into, then you can determine how much to invest in Bitcoin if it's the right fit for your portfolio.

Right now, the price of bitcoin is a little over $56,000. Fortunately, you can buy fractional amounts and grab a piece of Bitcoin for $100 or $1,000. It's up to you how much you invest. If you have the extra funds available to grab shares of Bitcoin, it provides a great opportunity to earn while you learn. Then, you can set up an investing strategy where you contribute a little bit more each month. 

So, take a look at your finances and see how much you can comfortably invest. Remember, you should not invest what you can't afford to lose. Like most other assets in the marketplace, there is no guarantee of profit and you can lose all your money. But on the other hand, don't be so afraid of losing that you miss out on an incredible learning opportunity. Bitcoin has been one of the best-performing assets of our time and the technology behind this cryptocurrency could revolutionize financial services. 

Make the best decision for you 

At the end of the day, it's your money and you want to put yourself in a position to maximize every dollar that flows through your pocket. Take care of your financial house and make prudent investment decisions that can put you in a better financial position later. 

Bitcoin's meteoric rise is impressive and the potential for even more gains is very alluring. But don't be so focused on missing out that you fail to see the opportunities ahead. There will always be opportunities in the market. But you want to ensure that you manage your financial foundation first so that you start using more of your money to make more money with ease.  

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