i believe that once an investor is able to settle his basic expenses first, then it wont be too difficult to handle if he then decide to use his remaining money for bitcoin investment, no matter how many percentage of it he use because that money is his discretionary income and he can choose how to use it provided hes not using it frivolously because as a bitcoin investor you ought to have a good financial management skill that will help the growth of your investment.
This is not entirely the right practice, It is important to build backup funds alongside your accumulating bitcoin, so it is necessary that he only invests some percentage of the discretionary fund into bitcoin maybe in the percentage of 40:30:30. 40% into bitcoin, 30% into building of backup funds and the last 30% for discretionary consumption.
Backup finds are good to be built out, especially emergency fund(which should be built out until it is equal to at least 3 months of your regular expenses) which serves as the last line of defense prior to tapping into the portfolio. It is very important in the case of unforeseen circumstances so that we don't turn immediately to our portfolio for to attend to such emergencies.
If we are fairly new to bitcoin and/or we at least consider ourselves to be in our bitcoin accumulation phase, then surely once we figure out our discretionary funds for each week (or pay period), we can default into some kind of formulaic practice and then just largely dedicate a certain nearly equal proportion to each of the categories, and if we are in such a practice, then we have a guide in the event that certain pay periods we might chose to be more or less aggressive, based on things going on in our lives.. and also even though we might have a percentage formula, there may well be some weeks (or pay period) that we are paid way more or way less than others, and/or our expenses might be way more or less than others, and so in those circumstances, it might not make sense to make equal allocations but instead to dedicate more to one category or another... or maybe we received a notice that we were going to be expecting a fairly large bill to come up, yet the bill was not going to be due until 4 months in the future, so then we realize that we have 4 months to save up for that bill.. and so we can attempt to structure our savings and realize for the next 4 months we will be building up our savings, yet after the passage of the 4 monhts, we can return to our previously established amounts (or percentages).
A real social person might have to dedicate more to discretionary consumption, and other persons might be purposefully less social (or maybe just figures out activities that don't cost much if any money), so sometimes the priorities can differ, yet they can be changed from time to time or they could be changed for a specific period of time, whether 4 months in the above example or some other period that maybe we might purposefully tell ourselves that we are going to increase our bitcoin investment allocation for the next 5 or 6 months, and then reassess where we are at after the passage of those 5-6 months.
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The absence of basic knowledge could very well be another key reason why folks happens to find themselves in the position of panicking during dips... And that's exactly why basic knowledge is
very necessary for folks prior to kickstarting your accumulation journey... Knowledge of volatility is inclusive to this basic knowledge and with it, so that certain mistakes like panics during bear season and/or selling while still in the process of accumulation can surely be avoided...But when that basic knowledge is absent, dips could begins to feel as if Bitcoin is failing or whatnot...
Yeah but what is basic knowledge that goes beyond understanding our discretionary funds that we cannot learn while we go, and why would such basic knowledge be "very necessary prior to starting?" I think that statement is very misleading, since starting can still be accomplished and the size of the buys can be adjusted to the comfort level.
Sure it does not seem to make a whole lot of sense for guys to be investing large amounts into bitcoin prior to their becoming comfortable with bitcoin and/or comfortable with their cashflow situation, yet there does not seem to be any meaningful "basic knowledge" that is needed before starting investing in bitcoin (except maybe figuring out from where the coins are going to be sourced) beyond just figuring out whether discretionary funds are available and then choosing an appropriate investment size into bitcoin (whether weekly or otherwise - whether that is $100 per week or $10 or some other amount) within the discretionary funds that have been assessed as being available.
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Shouldn't the reserve fund and emergency fund be included in the main mandatory expenses so that after the calculation is complete you only have more free discretionary funds?
No. The building up of emergency/reserve funds is not part of basic expenses. It comes from discretionary funds, and each week, each of us has the right and the ability to choose exactly how much (or even ballparkedly) of our discretionary funds (the amount that we have left after accounting for basic expenses) that we are putting into 1) investing, 2) back up funds, and/or discretionary consumption.
If you are very early to bitcoin, and you realize that you have close to no back up funds at all (or perhaps no back up funds), then sure, you might give a higher priority to building those funds faster than your bitcoin until you at least get them up to 2 weeks of your expenses, and let's say that you are brand new to the idea of investing in bitcoin and you are trying to figure out if you are going to get started or not...and you get paid around $600 every 2 weeks, and somewhere in the ballpark of $400 goes towards your various basic expenses. You have $200 remaining in your discretionary funds, yet decide that you want to get started buying bitcoin right away - even though you know that you are not going to be paid again for 2 weeks.
Just to attempt some sort of balance, you decide to divide the categories equally so you are gong to put $66.67 into bitcoin investing, $66.67 into your back up funds and $66.67 into discretionary consumption.
Let's say that your income and expenses largely stay the same for a whole year, so you just keep following exactly that same balance for a whole year, and so then after a whole year, there would have had been 26 two week periods, and you will find that you had invested $1,733 into bitcoin, you built your back up funds up to $1,733 and you had spent $1,733 on discretionary consumption.
At that point if your finances are still the same, then you already know that your monthly expense are right around $866 (that is $400 x 26 = $10,400 / 12), so if you had saved up $1,733 into your back up funds, at that point your back up funds would be equal to 2 months of your expenses, so after a year you would be in a pretty good place both in terms of the amount you put into bitcoin, the amount that you were able to build up in your back up funds (even though you started from $0)... and you also had a certain level of enjoyment with your ability to discretionarily consume $1,733.. and yeah, you can try to improve your discretionary funds by increasing your income and/or cutting your expenses, even though you are not necessarily in a bad place in terms of your being able to make progress within the means of your own situation.
because in my opinion the reserve fund and emergency fund are mandatory for you to always allocate every month,
That is not true. Even if you give back up funds a high priority, they are still within your discretionary funds, and not your basic funds. You are thinking about matters wrong if you cannot figure out the differences with what you need to live right now versus what you are preparing for cashflow shortages in the future whether drops of income and/or increases in expenses.. Sure the future is important, yet the present is more important and getting through each month with lodging, food, utilities, transportation and/or whatever other expenses you classify as basic..
and sure, maybe you have difficulties figuring out the difference between basic expenses that are needs versus wants that are discretionary.. yet practice should helpt to better understand the categories, the differences in the categories and how to prioritize within the categories of what is more and/or less important.
if necessary fulfill it first before investing, after you reach your emergency fund target then you have time to invest fully, and I think this is much better.
Of course, you have the right to prioritize however, you like in terms of investing versus back up funds versus discretionary consumption and how much to put into each of the categories based on your own circumstances.. yet it also seems to me that with bitcoin there is a lot of importance in getting started and building it, and there surely are guys who spend way too much time building up back up funds so they end up being way too whimpy in the amount that they ended up putting into bitcoin, and yeah, aggressive versus whimpy is on a scale, and those are personal choices that you have the complete rights and abilities to choose and to live with the consequences down the road, whether you are able last 10 years or longer or not and whether you look back and regret or not, since after 10 years there will be consequences to our choices, and w3e will not be able to turn back the clock and do those prior 10 years over again.
Because imagine when you start investing but your emergency fund is not fully met then when something happens to you then surely you will sell what you have bought and bitcoin is the most liquid one that you will definitely sell when the situation is bad which causes your investment to fail, I hope you can anticipate that condition by fulfilling the emergency fund first so that your investment will run safely.
When we start to invest in bitcoin, we are starting out at a certain place that we already are, whether we already have back up funds in place or not, and it seems to me that we figure out some balance to buiild up our bitcoin and our back up funds simultaneously and don't get distracted by delaying or giving way too much priority to cash. Sure, there are guys that may well be in a situation in which their income and/or their expenses are so erratic that they are not able to confidently determine that they have sufficient discretionary funds to get started investing in bitcoin and/or to continue to add to their bitcoin investment, so surely if guys are not sufficiently confident that they can lock up money for 10 years or longer and potentially lose all of it, then they cannot invest into bitcoin. Bitcoin investing comes from discretionary funds, and if guys cannot clearly establish that they have discretionary funds, whether $100 or $10 or some other amount, then they cannot invest into bitcoin.. Discretionary funds is the main prerequisite to invest into bitcoin otherwise if they don't have discretionary funds then they would be using money they need for expenses which means that they would be trading (and/or gambling) rather than investing, and I surely do not recommend trading/gambling with bitcoin (and this thread is also about bitcoin investing, not trading/gambling with bitcoin).
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You don't also have to set up your emergency funds and reserve funds at the same time because it will limit the amount of money that you will be using to DCA weekly. It's good to only set up one backup funds at a time simultaneously with growing your bitcoin investment which is your emergency funds so that, you don't start holding back too much cash that depreciates in value overtime.
In recent times, I have gravitated away from making so much distinction between emergency funds and reserve funds, even though surely emergency funds is the higher priority and the one that needs to be avoided tapping into and/or replaced as soon as possible after spending from it.. yet at the same time, when a guy is in his earliest years of building up back up funds, he is likely going to need to have a lot more flexibility since it may well take 1-2 years to build up his back up funds to equal 3 months of his expense and/or even more since we are likely going to find value in keeping back up funds that go beyond three months of our expenses and to have more flexibility with those back up funds once we have created our foundation level of emergency funds (such as 3 months).
We know that when we are building up emergency funds in the context of trying to avoid having to ever tap into our bitcoin at a time that is not of our choosing, yet we likely also know that if the emergency is BIG enough, we will end up tapping into our bitcoin, so there ends up being a balance between protecting our bitcoin and realizing if shit really were to hit the fan we have some or all of our bitcoin that could be used, and surely the larger and larger our bitcoin investment becomes, it ends up being there as a kind of insurance policy for the worst of situations.. and yeah, we still would prefer to not tap into it.. especially when we might have target amounts that we may well be trying to build it up to prior to authorizing ourselves to start to tap into our bitcoin holdings.
My point is that in the real world, there is likely going to be some flexibility in the back up funds, and even if we may well be putting systems in place so that the back up funds are ongoingly being built so that they get to a certain size, such as 3 months of our expenses or larger, but then at the same time, in the process of our building up such back up funds (perhaps a year or two process?) we may end up experiencing loss of income and/or increases in our expenses that go beyond our control that may cause us to need to have some flexibility in our labelling, wether we end up tapping into our back up funds due to needs or wants might also not confirm that we are completely exercising strict discipline... .. .maybe something a bit stupid and we largely had thought that we were sufficiently saving enough for our daughter to be able to get a bicycle for her birthday, and when the time comes, we end up having to tap into our back up funds because we just don't have the money.. and even though the bicycle is a want rather than a need, we might feel obliged to
You don't need to create an emergency funds first before investing in bitcoin because it will delay you from growing your bitcoin investment faster since you will be waiting and miss a lot of opportunities in the market to buy bitcoin cheaper with DCA. One thing you should know is that emergency might pop up or not which makes it not necessary to set up your emergency funds first when you don't have any bitcoin investment to backup.
For sure, a lot of us recognize/appreciate that back up funds and bitcoin investment can be built up at the same time, even if guys can choose how much priority to give to each yet at the same time be attempting to be making meaningful and material progress in each, rather than overly prioritizing one to the detriment of the other.. yet at the same time, these are discretionary considerations and guys might choose inferior ways to accomplish what they consider to be the priorities.. and perhaps have regrets later down the road, to the extent that they end up recognizing mistakes that they might have had made and ended up unable to go back in time and to fix their mistakes (their wrongly placed priorities).
It's good that a brand new investor without any form of backup funds before he decides to invest in bitcoin build his bitcoin investment simultaneously, with his emergency funds by sharing his discretionary income into three parts 33.3% for his weekly regular DCA, 33.3% to build his emergency funds and 33.3% for his discretionary income consumption to balance things for himself.
FTFY. Yep. completely ignoring the categories might lead to wrong results, even though surely each of those categories can be adjusted to account for variations in income/expenses and/or even variations in short-term preferences.
