For example, if you run out of your emergency fund and you need more money, you can take help from the reserve fund.
You make little to no sense.
Why would anyone take from their emergency fund prior to taking from their reserve fund?
There should be an order and a priority, and if one has strong finances they may never need to even dip into their emergency fund for their whole life - 20-40 years or longer... if a person is getting close to dipping into their emergency fundx or if they have already done so, then there may be some signs of urgency, including that they have already exhausted any other backup funds that they might have and that they would use prior to dipping into their emergency fund.
Thank you for making this clarification because it gets confusing for newbies and even the experience guys can mix things up somethings when a clear order of priprity are not defined and emphasized. Indeed, it is obvious that understanding the order of priority and building the discipline to follow it is key to a successful Bitcoin accumulation.
Initially I never integrated the concept of reserve funds rather emergency funds was just ok for me as I was strictly using the DCA method and as someone earning monthly salary, the cashflow was regular and predictable. But the recent market behaviour made me to make some additions into my Bitcoin collection which is continuing the DCA method and
also buying lump sum when I see a reasonable dip to enable me meet my Bitcoin targets.
Just to semantically correct you. There is a difference between buying lump sum and buying the dip. Even if you are using a larger amount to buy the dip, you are still buying the dip. The mere fact that you buy a larger amount does not convert that kind of purchase into lump sum rather than buying the dip.
Lump sum refers to getting an extra amount of cash, and then deciding what to do with it.. which you have the three choices of how to divide an unexpected extra amount of cash which is 1) buy right away (which would be lump sum buying) 2) buy the dip (which would be a form of waiting) or 3) DCA (which is another form of structured waiting)... and of course, you don't have to employ all three and you can do them in part or ONLY choose to do one or two of them rather than all three.
I have now also made reserve funds available to ensure a smooth flow of this concept sk that I will not be put in a tight corner for any reason and also to increase the protection of my emergency funds.
Yep.. I understand that sometimes people will convolute the ideas of emergency fund and reserve fund, so then it can be a bit unclear about priorities or when or how to dip into the funds, so if your funds are in separate categories, then you would likely realize the priorities better and end up treating the different categories of funds differently, even though some various kinds of reserve funds might or might not have differing priorities, depending on your own priorities.
A few days ago
I posted some examples about how reserve funds might be put into different categories, and we might be able to see that some of those categories might be more important to us than other categories, yet all of those various kinds of reserve funds serve as a lesser priority than the emergency fund and would likely be used prior to getting to dipping into our emergency fund.. so as those various reserve funds might end up being used, we might well realize, way before needing to touch our emergency fund, that we are running out of reserve funds and we need to buckle down with our spending otherwise, we might have to dip into our emergency funds - and we don't want to every have to dip into our emergency funds absent an actual emergency that includes us already having had exhausted our various other reserve funds.
For example, if you run out of your emergency fund and you need more money, you can take help from the reserve fund.
You make little to no sense.
Why would anyone take from their emergency fund prior to taking from their reserve fund?
There should be an order and a priority, and if one has strong finances they may never need to even dip into their emergency fund for their whole life - 20-40 years or longer... if a person is getting close to dipping into their emergency fundx or if they have already done so, then there may be some signs of urgency, including that they have already exhausted any other backup funds that they might have and that they would use prior to dipping into their emergency fund.
Sure there are likely a lot of newbies who are not even used to having (or maintaining) and kind of emergency fund and/or back up funds, so likely their earliest of years of investing (presumptively into bitcoin), they are going to be getting used to how to build and maintain such backup funds and how to prioritize their usage, including figuring out how strong their financial status is or if they might need to start to curtail their spending in various ways if they are starting to get to a point of exhausting their reserve funds prior to even touching any emergency funds, which hopefully they will never have to touch...but yeah, sometimes actual emergencies happen (rather than emergencies that had come about merely due to sloppy cashflow management).
A lot of newbies don't care about learning and understanding how Bitcoin investment works and what needs to be done financially to secure there investment, a lot of people feels having a strong backup funds are not really necessary and a lot of people don't even know if the reverse funds should be used first or the emergency funds.
Sure, that is part of the reason that some of us talk about those kinds of cash management matters as being basic foundations for investing into something as volatile as bitcoin. When an asset is volatile, cash management becomes more important, especially if you want to hold onto it and not end up losing money by holding it and not being prepared to hold it through potentially tough (and/or volatile) times.
It is very important to understand the financial system it helps to prevent ugly occurrence and mostly especially one's financial strength, a lot of newbies really do not care about learning and understanding financial security which is why they fall into mess, one needs to do research and try to learn something's and that is what has been helping me since I started this Bitcoin investment journey.
Sure. Many folks might try to take the easy road, and even presume that they know enough (including the basics), but sometimes we might not realize that we don't know as much as we need to know and that we might prevent a lot of problems by making sure that we learn the right things.. and sure, another thing might be that there can be difficulties finding the better information or sorting through good information and bad information or even being able to come to our own conclusions that are based on both experience and exposure to good information to sometimes put the information into practice too.. because sometimes we might know some things, but if we do not put what we know into practice, it might not make as much sense if it is just held in theoretical ways rather than putting it into practice.
A friend of mine still don't see any use of having a backup funds all his concern about is accumulating enough Bitcoin,
Some of those folks want to use their bitcoin as their emergency fund, but then they might not realize that if they use their bitcoin as their emergency fund, then they might get caught having to dip into their bitcoin at a time (maybe sell some or maybe end up having to sell all of it) that is not convenient and/or might lead to losing a lot of money because they end up having to sell low rather than the opposite in which they should be buying low rather than selling low.
I tried explaining to him the little I know but he feels after accumulating enough Bitcoin he we then start building his security but the question is what if along the line of building your Bitcoin an emergency happened and your little savings couldn't resolve it what will be your faith, you will have no other option than dipping hands into your Bitcoin investment and it may result to you exhausting your bitcoin, so what am I saying, securing your investment is as important as building it.
Surely, each person has to decide the level of risk that he is willing to take, and sure it could be the case that your friend ends up doing o.k., but surely, if he does not sufficiently protect himself, he might end up devolving into gambling rather than investing, and he might not even realize it - until some kind of a bad event takes place in which all of a sudden he might not have enough cash and he could have had easily prevented his bad situation by having better cashflow management... but yeah, every person has to figure out how to make those kinds of balances, including how much they are able to keep in their various backup funds without risking too much. We likely realize that people who don't invest and who engage in fairly sloppy cashflow management may ONLY keep around 2-4 weeks worth of cash for any extra expenses that might come during the month, so there are many people who live on the edge like that, and sure some folks already have practices in which they keep more than 2-4 weeks worth of cash. So it becomes more important to keep more back up funds when you have such a volatile asset such as bitcoin, and especially if you consider that your investment timeline is 4-10 years or longer.. so if you have a longer investment timeline, then you should want to make sure that you are not going to be tapping into that at any time that is other than your own choosing, which presumptively is 4-10 years or longer for any funds that you put into it, and some folks are considering timelines that might be 20-30 years or longer, especially young people. .and surely there could be some points in which even young people might have shorter timelines, including if they might be able to aggressively invest and reach some meaningful targets at times that end up being shorter than their initial longer timeline goals... so it seems better to plan longer timelines and to be more conservative, yet still being able to benefit if the investment (in this case bitcoin) goes better than expected and goals might be able to be reached faster than initially expected. .but in order to have those kinds of successes, it likely is better to have solid systems in place in which investing is taking place rather than gambling.
For example, if you run out of your emergency fund and you need more money, you can take help from the reserve fund.
You make little to no sense.
Why would anyone take from their emergency fund prior to taking from their reserve fund?
There should be an order and a priority, and if one has strong finances they may never need to even dip into their emergency fund for their whole life - 20-40 years or longer... if a person is getting close to dipping into their emergency fundx or if they have already done so, then there may be some signs of urgency, including that they have already exhausted any other backup funds that they might have and that they would use prior to dipping into their emergency fund.
Sure there are likely a lot of newbies who are not even used to having (or maintaining) and kind of emergency fund and/or back up funds, so likely their earliest of years of investing (presumptively into bitcoin), they are going to be getting used to how to build and maintain such backup funds and how to prioritize their usage, including figuring out how strong their financial status is or if they might need to start to curtail their spending in various ways if they are starting to get to a point of exhausting their reserve funds prior to even touching any emergency funds, which hopefully they will never have to touch...but yeah, sometimes actual emergencies happen (rather than emergencies that had come about merely due to sloppy cashflow management).
Thank you very much for correcting my mistake. I thought I might need a reserve fund in addition to my emergency fund, which would help me in the event of an emergency after the emergency fund runs out.
Yes, it is not difficult to prolong investment without reserve fund. You can prolong your Bitcoin holdings through planned spending and planned investments. Sometimes you may not even need your emergency fund.
If we think of Bitcoin investment as savings for a moment - I remember how I saved and bought my smartphone when I bought my first smartphone. I joined the teaching profession (home tuition) from the time I was in fifth grade, teaching students for a very low salary. Suddenly I need a smartphone. My family could not afford that money. I build a savings from my low salary, where I put about 80% of my salary into savings and the remaining 20% I use to meet my needs. From this 20% money I bear my education expenses. I didn't waste even a small amount of money until I reached my goal. My savings was almost 2 years long. After 2 years I save money to buy a smartphone and buy the phone, I earn about 10x from that phone later. In these 2 years I have faced adverse situations several times but planned spending has always helped me out of adverse situations. I didn't need an emergency fund then. But investing now can be extremely difficult without emergency funds. At that time no one was responsible for me. But now I have to be prepared for unexpected expenses due to the responsibilities of others, which is why I am obliged to have an emergency fund. To tell my story, if the goal is unbreakable then you can reach your goal without any funds just because of planned frugality.
So, if you can achieve your goal with temporary hardship, if the goal is honest then you will definitely start getting results after achieving the goal. In case of Bitcoin investment, you take temporary pains to take your investment to a certain goal, after achieving the goal, you will start reaping the results from there.
It could be the case that you are sorting through some of the terminology, and sometimes we might still be engaging in sound cashflow management practices, but just using different terms to describe what we are doing, and also sometimes we may or may not be keeping enough back up funds whether we call them emergency funds, reserve funds or float.. . and like you mentioned, there are ways that we can figure out what is our discretionary income, and we can make choices to hold back our discretionary income or even to increase our discretionary income by increasing our income or cutting our expenses, especially if we might have some various categories of goals that we would like to achieve, if we are saving up for some kind of a specific good or service that we want to purchase or if we might have some kind of an investment that we might want to make.. and surely even some investments (like a smartphone) might cost a lot and might depreciate in value, but some kinds of goods we might be able to use in order to increase our income or to cut our expenses, so sometimes even consumer good might serve some utility and even be considered a kind of worthy investment.
So yeah in regards to bitcoin, there can be some dilemmas that involve really being able to set aside the money that we are investing into bitcoin and expecting to not be able to use that money for many years - such as 4-10 years or longer and even having some understanding that it is possible that the bitcoin investment might not do well. .so we have to be prepared for a variety of scenarios and choosing our investment size so that we are still able to live our regular life while making reasonable and prudent choices about how much of our discretionary income to put into bitcoin within our own particular financial and psychological circumstances.
You have mentioned the differences between the two well, so it all depends on which one is most suitable for you and is best done because both are to achieve profits according to your strategy and targets.
And clearly based on both definitions, I would argue that these two techniques are applied in different situations.
If we use the lump sum strategy method, it is applied when we first make an investment, namely by dividing our entire capital into 5/7 or whatever percentage we want as a percentage for making routine purchases. And the hope is that if the price of Bitcoin continues to fall, then you can get the price of Bitcoin at a cheaper price than buying Bitcoin all at once and this can also minimize risks and increase profits.
And to do DCA, I think most people already know how to do it because it is the best way to invest long term and very effective. And DCA is a routine investment strategy in every period with the same amount without caring about the price of Bitcoin when doing it, especially when the market is bearish and DCA in my opinion is much better and also much more profitable in the long term.
I am in favor of lump sum if someone is able to do that. Actually, it's best to have it through it when the investor has a lot of money but the case is different for all of us. Not everyone is able to buy huge amounts and has a lot of obligations and that's why what's left with their salaries is what they're spending to invest. So if you are an average worker and sometimes you receive bonus, I think that's the time that you should use your money wisely and do a lump sum buy. But you don't stop DCAing because whatever works for you, must work for you. As said by the others, DCA is good during the bear market and there is no doubt with that and that's also the same with lump sum if you happen to buy at one dip part of that bear.