When we are referring to an amount of money that a person "can afford to lose," there is a psychological component.
Of course, a person could invest up to 100% of their discretionary income into bitcoin, yet if they make mistakes and they have no money left, then they might accidentally use money that they need for their expenses, so there can be dangers in using 100% of your discretionary income for investing in bitcoin.
If you can tolerate all that negative BTC price pressure, then sure maybe you have invested no more than you can afford to lose, but you are going to end up being financially and psychologically challenged if the BTC price moves against you... so you actually need to find some balance in which you are both financially and psychologically comfortable, which is also part of the reason that many people are not going to invest 100% of their discretionary income, and maybe they will find some way to be aggressive without over doing it, but maybe invest around 50% or 60% of their discretionary income into bitcoin.. so then they have the remainder of their discretionary income as a kinds of cushion.
All that you said here are true, most times their are various things we need money for which are not part of our basic needs but it's very important, something like data subscription, and sometimes being generous to the guys in the neighborhood, that's why investing more than 60% of our discretionary income looks risky especially if you don't have a very huge emergency and reserve funds in place to cover up those lapses.
Then as for the bold write up in your statement, yes it's true, that term ''the money you can afford to lose'' can be best tested when you can withstand all the negative news and the psychological pressure attached to holding, if you can hold confidently without panicking during the days of the dip, then their is a great probability that the said investor is investing with an amount he can afford to lose.