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The truth is that, a lot of people often underestimate the power of consistent contributions, no matter the size. Even if you're putting in as low as $20 or $40 towards your emergency fund every week, as long as you stay consistent, that
compounding effect will definitely build resilience overtime, You are using the term "Compounding effect" incorrecty.
You probably meant to say cumulative effect.
Compounding effect tends to be used to describe something that grows in value, such as bitcoin.
back up funds are kept in cash and they are likely ongoingly losing value (since the cash is debasing), yet if we are building up an emergency fund, then nominally it will keep growing as we keep adding to it.. so it is a cumulative effect and not a compounding effect.
Bitcoin grows in value, so for example every time it doubles in value (not quantity), then the next time it goes to double again, the original value plus the gained value will double upon itself. So for example if we look at bitcoin from 250 until now, it has doubled in value nearly 9 times (I list out the compounding value of bitcoin in
this post), even though the nominal might not have had changed.. Frequently the term compounding is used in the context of interest or yield, but it can also be used in terms of value.
and as soon as you notice that you've gathered a sizable amount for emergencies, then those free money can be directed towards Bitcoin with far greater confidence.
I agree with you that in the early stages, flexibility is very necessary, but in order to ensure long term sustainability, discipline in rebuilding becomes very crucial, because without that discipline, the emergency fund, instead of being treated like a true shield, now stands the risk of being considered as a revolving door.
We need to figure out our own internal rules upon what conditions we might draw down our funds, and then for example, if the funds get to such a low point that they are considered emergency funds, we might stop buying more bitcoin and/or take other measure to protect ourselves, maybe cut back on certain expenses and maybe start looking harder for ways to raise money whether it is working or selling things...
In the beginning we might not have a very large cushion of resources, yet I would think when we get 3-4 years or more into our investment, we should have had built up better systems of back up funds and also built our bitcoin holdings at the same time.