Re: Discretionary Income vs Emergency Funds: Why It Matters for Bitcoin Investing
I disagree on the emergency funds piece but also agree too. Ahhh a conundrum what do I mean lol. It comes down to the maturity of your emergency fund.
I agree 100% with you based on early maturity of your emergency fund covering your life expenses for 3months(minimum) It should just cover your basic needs for that time period. It shouldn’t be used for bitcoin investments.
Where I disagree, again relates back to maturity. Over time you may increase your emergency fund for example extending it to 6,9,12,18 months of $ saved, at some points in the future. When you have maturity in your emergency fund you can start to figure out basic to comparative living $ needs. It happens naturally and you might account for other expenses above basic living coverage. So I absolutely disagree that you can’t use your emergency fund for buying bitcoin( like dca amount) in sense that if you account for it as something over basic living coverage and have that maturity in your funds. Personally I only started to think about extra over basic living things once my emergency fund reached 6 months.
As an example say you have 18 month coverage in your funds. Now you got a decision to make if say you lost your job. Do you do basic living for 24months or comparative living for 18months(with a btc dca).
Great write up by the way thanks for sharing, I enjoyed reading it!
I agree 100% with you based on early maturity of your emergency fund covering your life expenses for 3months(minimum) It should just cover your basic needs for that time period. It shouldn’t be used for bitcoin investments.
Where I disagree, again relates back to maturity. Over time you may increase your emergency fund for example extending it to 6,9,12,18 months of $ saved, at some points in the future. When you have maturity in your emergency fund you can start to figure out basic to comparative living $ needs. It happens naturally and you might account for other expenses above basic living coverage. So I absolutely disagree that you can’t use your emergency fund for buying bitcoin( like dca amount) in sense that if you account for it as something over basic living coverage and have that maturity in your funds. Personally I only started to think about extra over basic living things once my emergency fund reached 6 months.
As an example say you have 18 month coverage in your funds. Now you got a decision to make if say you lost your job. Do you do basic living for 24months or comparative living for 18months(with a btc dca).
Great write up by the way thanks for sharing, I enjoyed reading it!
You highlight one of the problems with OP's write-up, even though it can be helpful to think through the various categories of funds (including discretionary funds, emergency funds, back up funds and other categories of funds, such as reserves and float), yet in the end people will call their various categories of funds different things - and there will likely be some back and forth movements and even blending between kinds of funds without necessarily knowing the names of the funds, or not giving consideration to how they are stored and/or what purposes the various funds might serve - including that if certain back up funds are built to a certain level (or even depleted to a certain level) then it could trigger actions from the saver/investor and/or behaviors to move funds from one location to another, to spend more in one category of funds or another category, to refrain from spending in one category of funds or another or to figure out ways to make more money (to increase discretionary income by increasing income and/or cutting expenses).
If we might say that all forms of back up funds are build from discretionary funds, then we might consider that these back up funds might fall into three categories of emergency funds, reserve funds and floating cash.
The income that comes in on a regular basis will be used to cover various basic expenses first and even some folks have some of their discretionary expenses counting as basic expenses, then once the basic expenses are covered then what is left would be discretionary income which can be used for discretionary spending, consumption, investing or put on the side to add to various back up funds whether to emergency funds or to reserve funds.
I personally consider the float funds to be money that has come in as income but might be held in a bit of limbo until the monthly expenses are determined, and once the expenses are figured out then if there is extra money in the float, then that extra money would convert into discretionary funds.. which means it could be spent for consumption, used for investment or put into the back up funds, into emergency funds and/or into reserve funds.
If we suggest that we want to get our emergency funds to reach a level of being at least 3 months of our expenses because we are trying to protect our bitcoin investment, yet if we do not have any bitcoin investment, then there is nothing to protect, yet if someone is brand new to investing into bitcoin, then he might already have a practice of keeping 2 to 6 weeks of cash for expenses or to cover any unexpected needs for cash, so he may have already inadvertently been in the practice of keeping emergency funds, yet he might not have had been considering his extra money as emergency funds but instead more like reserve funds that have more flexibility in their abilities to be used for various categories of extra expenses that might come up. Of course, not everyone has good cashflow management and/or abilities to hold some money in reserves, even though many folks will engage in holding 2-6 seeks of expenses in some form of reserve without necessarily realizing that is what they are doing.
Maybe ways of thinking about cashflow management are motivated to change for guys once they come into bitcoin, since they will suddenly have a motive to both protect their bitcoin but also to begin to build their bitcoin stash... yet it would likely not be practical or even a good idea to build the emergency funds up to 3 months of expenses without having some bitcoin, so then that would likely justify building up the bitcoin stash and the emergency funds simultaneously, yet there still would be discretion regarding how fast to build up the various back up funds (including that there still might be some needs for the back up funds to be flexible in their ability to be used while they are being built up) versus the building up of the bitcoin stash, which also has some priority to build up and have some bitcoin - rather than having a bunch of cash building up and no bitcoin to protect... so then the building up of the bitcoin and/or the emergency funds come from discretionary funds - unless a person might come to bitcoin and already have other investments or considerable amounts of savings (or reserve funds), so there could be some abilities to front load into bitcoin from their other resources, that had presumptively been built up from their discretionary income or as a result of past earnings and/or past gifts (which when received is similar to discretionary income to the extent that past gifts might be converted into cash or chosen to keep in their original gift form until later being used or converted into other form). So, of course, funds/assets can be moved around to the extent that they had already been built up.
The various building up of funds or even the self-imposed restrictions of funds is going to have some variability, even though a guy might be aiming to get his emergency funds at least to 3 months of expenses, and if he gets his emergency funds up to at least that 3-months level then maybe excess back up funds beyond 3 months would be considered as reserve funds rather than emergency funds since they have more flexibility, yet surely as I already mentioned, if there is less than 3 months of back up funds and they are still being built up to a higher level, then there maybe be some needs to be flexible in regards to how funds might be used as those funds are being built up, and sometimes it can take a guy quite a long time to get his back up funds to at least three months.. It could take a year or two or more depending on how much money he has and is putting into such funds..
A new guy to bitcoin may well also be putting money into bitcoin while he is building up various back up funds, and then sometimes maybe needing money that he might want to draw from his back up funds as he is building up both his back up funds and his bitcoin, so if push comes to shove, it is better for newbies to spend from their emergency funds/back up funds rather than spending from their bitcoin, yet if he depletes some of his back up funds because he does not have any more money, he might be forced into building his those back up funds rather than buying more bitcoin, which surely can be dilemmas that can slow guys down in their bitcoin stacking and/or their making sure that they have enough back up funds. Guys might want to be able to accomplish both the building up of the bitcoin investment and the maintenance of a sufficiently large enough back up funds (emergency funds).. but they are limited.. and maybe if they are taking 10% of their income to build their back up funds and their bitcoin and then spending from the back up funds from time to time, it could end up taking them a year or two or more to get their back up funds and their bitcoin investment to be three months or more of their expenses.
Maybe the solution to try to build up faster is to increase their discretionary income by increasing income and/or cutting expenses, yet guys still might not be in a great position (situation) to increase their discretionary income...so they are ongoingly stuck with a dilemma to both build up their bitcoin stack size and to build up their back up funds and to not get into a situation where they end up having an emergency and they failed/refused to maintaining enough back up funds and end up having to dip into their bitcoin at a time that is not of their own choosing.
By the way, your point about "Over time you may increase your emergency fund for example extending it to 6,9,12,18 months of $ saved" which also highlights a bit of a dilemma, since we do not tend to want to have a lot of cash, since it is ongoingly debasing in value so it can be hard to maintain, yet as our bitcoin holdings get larger and larger, there could be reasons to offset some of our bitcoin holdings with cash that goes beyond the emergency funds, so then there could be 3 months of emergency funds and 3 months of reserves which adds up to 6 months, but then at that point there might be some desires to have extra cash to be working or otherwise invested, yet at the same time considering how liquid it is (how long will it take to get at it.. a few days, a few weeks and is it changing in value differently from bitcoin or similar to cash?), there can be dilemmas about ways to buttress and to offset the amount of bitcoin that we have, even though for the very beginner investor into bitcoin, he is likely going to be initially considering how to get his both his emergency funds and his bitcoin at least up to 3 months of expenses value each, yet even calculating how much is in the emergency funds versus how much has been put into bitcoin can result in quite disparate valuations, since bitcoin volatility can cause the dollar (fiat) values to be quite varied from one another, even if the guy might have put around 3 months of dollar value into the bitcoin, it could be valued way more or way less based on changes in the bitcoin price during the time of putting the value into it.
The moment you start mixing the two, you are maybe setting yourself up. You could hurt both your finances and your peace of mind..
We really have to plan our investments well, the most important thing is indeed managing finances first. So we can find out the amount we will invest regularly, as well as emergency funds. The mistake of investors who are just starting to buy Bitcoin is to consider it as savings. So, put all the remaining money to invest in Bitcoin. If finances do not pose problems, as long as the needs are covered. But when you have problems related to something emergency, especially if you don't have insurance. The choice is to sell some Bitcoin to meet the needs. This is what hinders the success of investment in reaching the target.
But still, some people may not mind that. But actually, it is important to pay attention to.
Many people (newbies and poor people) make the mistake of using their bitcoin as their emergency funds without necessarily realizing that is what they are doing... so they end up getting themselves in a pickle, and like you suggested, they might not even consider their having had sold to be a BIG deal as long as they were forced out of some or all of their bitcoin and they happen to be "in profits," which still they are likely failing/refusing to recognize/appreciate the importance of holding and building up their bitcoin stash for the long term in spite of their bitcoin stash sometimes being in profits.. and if they are frequently selling amounts of their bitcoin merely because their coins are "in profits" they likely will never end up making much if any progress in building larger levels of wealth.. which is a product of longer term compounding rather than various smaller levels of profits.. that might seem great, but in the end, they are taking away from their bitcoin holdings/profits to compound upon themselves.. because they are prematurely and frequently withdrawing in the name of supposed "profits"..
Your reply had me thinking fr, I won’t lie. I like how you broke it down.
This part cracked me up a bit. But yeah, I get you 100%. When you’ve built your emergency fund to a certain level, your mindset around it starts to evolve too.
All in all, I rate your takes. I’m glad you enjoyed reading it…
I think a lot of people know the difference deep down, but in the moment, emotions take over. It’s why these conversations matter just to remind ourselves of the bigger picture and stay grounded.
Appreciate you sharing your view.
I disagree on the emergency funds piece but also agree too. Ahhh a conundrum what do I mean lol. It comes down to the maturity of your emergency fund.
This part cracked me up a bit. But yeah, I get you 100%. When you’ve built your emergency fund to a certain level, your mindset around it starts to evolve too. I agree 100% with you based on early maturity of your emergency fund covering your life expenses for 3months(minimum) It should just cover your basic needs for that time period. It shouldn’t be used for bitcoin investments.
Yeah that is key. At the early stage, the fund is strictly for safety, no story. You can not be playing around with it when you have covered barely 3 months. That solid base has to be untouched.Where I disagree, again relates back to maturity. Over time you may increase your emergency fund for example extending it to 6,9,12,18 months of $ saved, at some points in the future. When you have maturity in your emergency fund you can start to figure out basic to comparative living $ needs. It happens naturally and you might account for other expenses above basic living coverage. So I absolutely disagree that you can’t use your emergency fund for buying bitcoin( like dca amount) in sense that if you account for it as something over basic living coverage and have that maturity in your funds. Personally I only started to think about extra over basic living things once my emergency fund reached 6 months.
Hmm, true though, would say once your coverage extends beyond the basics, let’s say you’ve got 9 months or even a year gathered up, then you can start planning with the extra. I won’t say it’s reckless, if it intentional and already secured your base.As an example say you have 18 month coverage in your funds. Now you got a decision to make if say you lost your job. Do you do basic living for 24months or comparative living for 18months(with a btc dca).
Great write up by the way thanks for sharing, I enjoyed reading it!
This is real-life logic. Sometimes it’s not about just surviving, it’s about balancing your life and staying sane during the tough moments. And if your plan includes a small DCA during that time, and you’ve accounted for it, then it’s valid. I see where you’re coming from completely.Great write up by the way thanks for sharing, I enjoyed reading it!
All in all, I rate your takes. I’m glad you enjoyed reading it…
I totally agree with you on this, Emergency funds are meant not to be touched but rather they are meant to foot the bills of unforseen circumstances. But for discretionary income one can decide on what to use it for, either for savings or what a view.but then most investors don't understand this principles and get it twisted so your point clearly state one save what remains out of paying their responsibility bills.
Exactly man. I think what really stands out is the discipline, not many people can resist the urge to dip into their emergency funds when the market starts flashing buy.I think a lot of people know the difference deep down, but in the moment, emotions take over. It’s why these conversations matter just to remind ourselves of the bigger picture and stay grounded.
Appreciate you sharing your view.
For readability, I fixed your quotes. You had placed an extra: "quote author=Greyhats link=topic=5550789.msg65603437#msg65603437 date=1753019463]" in the top of your response post.