About a week ago Tungbulu invited me to participate in this thread, and I don't mind, even though I understand that some local's might prefer to keep threads to locals so that the topics might remain accessible and even communicated in local language, which I don't necessarily understand very well.
You're absolutely correct, overthinking can indeed potentially lead to paralysis. The best way to get started is to take the first step, even if those steps are very small, at least it's better than waiting for a perfect time that may likely not even come. Bitcoin accumulation and building an emergency fund can actually be done simultaneously, I actually created a topic on how this could be achieved. I did a quick glance at it, and I bookmarked the thread so that I can read it and subscribe to it.
And it'll also be very much appreciated to also share your thoughts and knowledge on the topic, it'll definitely create further opportunity for users to get to learn from your knowledge and contributions.In many of my interactions with Tungbulu, I do tend to agree with a lot of his bitcoin and financial management points, yet when I reviewed OP, I did find several areas in which I would have had expressed the ideas differently, which may even rise to the level of substantive differences of opinion.
To attempt to clarify what I mean, I will go through all of the points raised in OP.
I greet all of you my country people. I know there may be a few other topics that emphasizes on the importance of an Emergency fund to an investor. Yes, everybody knows say Emergency funds dey important, but that's not what I'm here to talk about. With the help of this thread I'm aiming to give a detailed and step by step guide on how to simultaneously build an emergency fund while also accumulating Bitcoin. This is to prevent the excuse of having to waste more time building an emergency fund before getting started with one's accumulation journey.
For sure, I think that it is a good idea for guys to consider the role of an emergency fund and to try to tailor their level of emergency funds to their own financial and psychological circumstances, and frequently I like to presume that a large majority of normal people already tend to keep right around 2 to 6 weeks (or even more) of emergency funds (or back up cash) whether they invest in bitcoin or not, and yeah, they might not call their funds an emergency fund, but the money still tends to be available so that money does not run out between the receipt of pay, and surely some folks have regular pay periods and other people have more irregular pay periods, so many folks already tend to get into some kind of a practice of keeping back up funds and/or emergency funds just so that they can try to stay somewhat self-reliant and not having to count on others in order to make it between paychecks.
Of course, many of us likely know folks who are always running out of money and/or seeming to cause their own emergencies because they are not managing their cashflows or their back up funds (emergency funds) well. The idea of back up funds become even more important when a guy has an investment like bitcoin because part of the purpose of the back up funds is to make sure that the bitcoin is not serving as the back up funds and/or emergency funds, especially since the value/price of bitcoin is not pegged to the local currency, so its value will likely fluctuate a lot and so it does not tend to serve as a very good emergency fund/back up fund since the aims of any investor (who has a timeline of 4-10 years or longer) should be to building his bitcoin and not to be drawing upon the bitcoin during the period of building it up and not draw upon the bitcoin at any time that is not of his own choosing, which surely should be 4-10 years or longer.. (perhaps 10 years or longer except for those folks who might have health or age concerns that do not necessarily allow them to lock up funds for 10 years or longer).
DETERMINING YOUR FINANCIAL PRIORITIES
1. Emergency Fund: An emergency fund like we already know should be at least 3 to 6 months of our living expenses and this is what we should aim for.
I frequently like to suggest that our aim for emergency funds should be at least 3 months of expenses.. and to try to show that with the emergency funds there should hardly be any flexibility, yet of course, if a person does not have any other funds besides emergency funds and his bitcoin investment, then the emergency funds should be spent prior to spending from the bitcoin.
I think that if there are back up funds that go beyond 3 months of expenses, then those funds would have more flexibility to potentially use for other purposes, other than being for ONLY emergencies... .. so if someone is spending down his back up funds and they are more than 3 months, when the funds are depleted down to 3 months, then that should be a sign that times are dire, since ONLY emergency funds are remaining.
Many of us likely realize that if we were starting out our investment into bitcoin, and maybe we already had around 4 weeks of expenses worth of cash but we had zero bitcoin, and maybe if we were setting aside $50 per week to buy bitcoin, then we likely need to build the expenses at the same time.. so it could take a while to build up the emergency funds and the bitcoin investment to each equal around 3 months of expenses invested into them, yet the bitcoin would likely be more volatile and changing in value, while the emergency funds would be in the local currency or perhaps some of it in dollars to the extent that dollars mighty be able to be used for local expenses.
Maybe an example might be helpful?
Let's say that a guy is in his late 20s, and he had been working on various job skills and he has a decent job (I am going to try to use something that might be Nigeria relatable even though it might be considered a decently good income). Let's say that the guy earns anywhere between $500 and $2,500 per month, and most of the time the monthly income is right around $1,500 (so he considers his yearly income to be around $18k). His expenses tend to be between $750 and $1,200 per month (most of the time around $950), so overall he already has been in the practice of keeping $900 to $1,100 in various forms of cash in case there might be months in which his expenses are greater than his income, and overall he feels that he has a pretty comfortable financial situation...
and he also figures that he could probably invest around $300 per month into bitcoin, yet he realizes that he probably would need to build his bitcoin and his back up funds at the same time, yet since he had already got a bit of a start on his emergency fund, since right now he has $1k in extra cash, he may well start building his bitcoin at anywhere between $60 and $90 per week, and let's say that if he averages around $70 per week, and if nothing goes wrong in which he has to use his $1k emergency funds, he figures that it may well take him around 14 weeks before the amount that he has invested into bitcoin will be equal to his emergency funds, and since his emergency funds are still only enough to cover about a month, then he may well have to continue to build his emergency funds at the same time as his bitcoin investment, especially once the 14 weeks has passed then his tentative plan is to invest around $35 per week into each, until his emergency funds reaches a total of $3k to $3,600.. and then he is going to reassess.. but his tentative idea is that it may well take him an additional 71 weeks or so to get his emergency fund up to $3,600, so then in the total time would be around 85 weeks in which he may have had invested something like $3,600 into bitcoin and around the same amount into his emergency fund.
Surely, the bitcoin price may well have have a lot of changes in 85 weeks, yet he considers that once he builds his emergency fund up to 3 months, then he may well be able to resume investing the full amount of his extra pay (his $70 per week into bitcoin). He also considers that if he is investing into bitcoin and studying bitcoin, and paying attention to his cashflow management better, then he may well find some opportunities that he might be able to increase his discretionary income by increasing his income and/or cutting expenses. He might also identify some areas in which he might be able to receive extra cash or even bonuses and/or maybe to work on getting a promotion.
The final amount usually varies from individual to individual so focus on your financial situation and allocate 20% of your income to a readily accessible savings account. You may also choose to diversify a lesser percentage of your Emergency fund to Bitcoin too. Note that this is by choice and not really necessary.
2. Bitcoin Accumulation: 30% of your income should go to your discretionary spending, you can choose to use all 30% to accumulate Bitcoin or use a lesser percentage, it's totally up to you, but note that it should be a reasonable amount.
I know some people might already be tempted to as where the other 50% of your income should go. Take a chill pill, we'll also come to that. Now, we move to another segment which is...
I have a hard time imagining scenarios in which guys are able to save or invest more than 20% of their salary (especially in consistent ways), and many guys have difficulties figuring out ways to consistently invest 10% to 15% of their salaries.
The example that I gave above is a guy who is generally making something like $1,500 per month and is trying to work with $300 per month, so yeah, that is right around 20%, so it is possible that a guy can get to higher levels by either increasing their income or cutting their expenses, yet I have trouble presuming that guys are able to easily accomplish those kinds of savings/investing on a regular basis, even though they can continue to work on putting themselves in such a situation to the best of their abilities.
TIPS FOR BUILDING AN EMERGENCY FUND
1. Automate your savings: sometimes having to manually save money can be very tiring, you might even forget sometimes and before you know it, you've used the money for something else, so automating your savings can be a pretty helpful tip to ensure you stay religious with your savings.
I personally don't like the idea of automating savings and/or investing into bitcoin and I tend to consider that to be a more whimpy approach to investing, even though there could be some automation as a kind of supplemental practice, so maybe the guy that I had described earlier, he knows that no matter what he wants to invest $70 per week into bitcoin for a period of 14 weeks, and then perhaps for another 71 weeks he would invest around $35 per week into bitcoin and then thereafter to revert to $70 per week... and so there could be reasons to supplement the weekly invstments to the extent that the cashflows change.
I also consider that the first year or two investing into bitcoin that manual investing into bitcoin on a weekly basis and actively adjusting may well be better ways to keep the investing active and attempting to be as aggressive as possible within personally tailored limits.
2. Make use of the 50/30/20 allocation rule: 50% of your income allocation should go to taking care of essential expenses and immediate needs. The mistake people often make is neglecting this aspect, forgetting that it is actually inevitable and unavoidable, even when you manage to avoid it today, it'll come back tomorrow bigger, and you'll be forced to still sort them out, thereby messing up your plans. 30% goes to your discretionary income and the other 20% towards your savings and also for debt repayments.
I have a hard time imagining very many situations in which normal people are able to save and/or invest 50% of their income. You have largely described a situation of 50% expenses and 50% discretionary income.
TIPS FOR INVESTING IN BITCOIN
1. Dollar-Cost Averaging (DCA): This is a very popular strategy and every true Bitcoin enthusiast should have heard or known this strategy. Now the reason I'm bringing up this strategy is because, if you're to achieve building a portfolio and an emergency simultaneously, then you need to marry this strategy, because it's the only strategy I know that gives you the kind of flexibility to achieve this. So prioritize investing a fixed amount from your discretionary income/spending at a regular interval that sits well with you, regardless of the market's performance.
I agree that DCA fits an overwhelming majority of folks to be able to tailor their level of aggressiveness, yet in the end there likely are needs to consider both DCA and the other BTC accumulation strategies of lump sum buying and buying on the dip. i surely am not a large fan of buying on the dip strategies, yet it can supplement lump sum investing and DCA investing depending on how much a person front loads, so for example the guy that I mentioned with around $70 per week bitcoin buying, from time to time (maybe a couple of times a year), he might come across some extra cashflows, which might justify that he considers supplementing his DCA strategy with lump sum buying (buying right away with higher amounts) and/or buying on dips... and these are the kinds of situations that are somewhat individualistic in terms of determining how aggressive the guy might want to be.. and if his situations might be able to allow some variance during those periods, from time to time, that his cashflow might vary.
2. Start small: Starting small is very important, especially if you're a low income earner, don't look at how much you plan to achieve just yet and just start with a manageable investment amount and then you can gradually increase your pace/amount overtime.
This tends to be a good idea, since guys tend to need to get used to investing into bitcoin and how it is going to affect their cashflow, including if they are investing for 4-10 years or longer, then they have to come to the realization that the money that they put into bitcoin is not going to be available to them, so it may well be better if they error on the side of not putting too much and not making the mistake of putting money into bitcoin that they actually need for current expenses or even expenses 3-6 months down the road.. and surely it can be helpful for guys who are investing into bitcoin to project their cashflows into the future, maybe even 12-18 months or longer. Of course, the more complicated their cashflows (income, expenses, relations, family, debt management) then the more that they might have to project out further into the future.
3. Diversify your portfolio: for starters, this isn't actually very mandatory but I just wanted to include it because there are some unique situations that may likely arise that may potentially lead to diversifying your investment beyond Bitcoin in order to minimize risk.
I am also not too excited about the idea of diversification, especially for newbies, since they likely need to start with one thing at a time, which would be bitcoin and dollars. Sure there are some folks who come to bitcoin and they had already been investing or they have some other investments, so how to treat their other investments would be a factor that they would need to account for... but yeah, generally diversification for the mere sake of it hardly makes any sense, and newbie investor might spend more than a whole bitcoin cycle investing into bitcoin before diversification might start to make some sense for their situation.
BALANCE BOTH GOALS
1. Your Emergency Fund should come first (for now): If you're hoping to achieve both goals simultaneously, then your focus should be more on stacking up that emergency fund FIRST, and then you may allocate more funds to your BTC accumulation.
For sure, I don't see any reason to build up an emergency fund prior to getting started in bitcoin... and like i mentioned in my above example, guys may well start out investing in to bitcoin and already have 2-6 weeks of cash onhand, which practically would be the budding start of an emergency fund.
There are a few other reasons to not build up an emergency fund prior to getting started with bitcoin.
The first thing is that if there is no bitcoin investment, then what the fuck are you protecting? The emergency fund helps a guy to not have to tap into his bitcoin at a time that is not of his own convenience, but if he does not have any bitcoin, then what is it that he is protecting exactly?
Second, if a guy is building up an emergency fund to be at least 3 months of his expenses, then holy fucking shit, it might take him 2-3 years to achieve that goal, especially if he is ONLY able to stock away 10% or less of his income at a time. My earlier example was a guy who took 14 weeks to get his bitcoin up to the same size as his already existing emergency fund (that was about 1 month of his income), and then he took another 71 weeks to get both his emergency fund and his bitcoin to the same level (about 3 months of expenses invested). .and yeah maybe he could cut that time in half if all the money was going to his emergency fund rather than diluting between the emergency fund and the bitcoin investment, but can you imagine, holy shit, waiting 30 weeks or more to fuck around building an emergency fund prior to even buying $10 worth of bitcoin (getting started?) .. seems unreasonable and even self-defeating.
Third, your money is automatically losing value when it is kept in fiat.. and emergency funds should be in fiat.. .. so you got a bunch of money building up and none of it is working for you.. since emergency funds need to be liquid.
It just seems self-defeating to employ waiting strategies prior to getting started buying bitcoin.. .and surely an emergency fund is not more important than getting started buying bitcoin.. .. and guys should be able to figure some balance and prudence in these matters of doing more than one thing at a time.
2. Adjust your allocations: This may not also be very necessary for some, but periodically review your income allocation and should the need arise, make some necessary adjustments in order to ensure you're actually meeting the goals.
This sounds reasonable.. and it seems guys should be continuously studying his own individual factors, and sometimes if any of
his individual factors change, then adjustments (tweakings) can be made and probably should be made, since we should be striving to tailorize our investment style to our finances and our psychology.
3. Be Patient: this is actually the most important one, building an emergency fund and a Bitcoin Stash at the same time takes a lot of time and so requires lots of patience, because sometimes it might look like you're not even getting it right, but as long as you're following the above steps, just keep going and being patient.
I agree.. Frequently at least a whole cycle might be necessary to even start to see meaningful progress... and sure, some of the ability to measure progress may well relate to how much frontloading is possible, but many guys are not really able to front load their investment, and they might be mostly stuck with 5% to 25% or some other amount coming out of their pay, whether they are investing into bitcoin weekly or some other period...and whether they are erroring on the side of whimpy or aggressive will also make a difference in terms of how the results are measured.
These steps may not really look like pretty much but I assure you that these steps and tips can actually help anyone (with a steady income source) to build a robust Emergency fund while also accumulating Bitcoin regularly. And don't forget that staying disciplined, patient and informed is also key to achieving this goal.
Pls you can also include other helpful tools if you've got any.
Mistakes might also be made at various points along the way, and sometimes we might not realize our mistakes for several years after we had been making them, yet surely we can still make tweaks when we discover that we make mistakes, and surely the better kinds of mistakes relate to levels of aggressiveness, yet the worse kinds of mistakes would be if we were to end up going overboard in one direction or another.. or getting lured into shitcoins and/or trading.. and sometimes even if we might make some of the worse mistakes, if they were tempered by their size, then it may not be a BIG deal if we ended up investing 10% into shitcoins or something like that ,since we may well have had made sure that we stayed focused mostly on bitcoin and we just dabbled with areas of our curiosity and realizing that it might not be a good use of our time, energy and/or money, but if we limited it to 10%, we still might have been able to get some advantage and learning from that kind of a mistake as compared to if we might have had dabbled larger in that direction.