EMERGENCY & CUSHION FUNDS

What exactly is an emergency?

The Merriam Webster dictionary defines it as, ‘an unforeseen combination of circumstances or the resulting state that calls for immediate action’ or

’an urgent need for assistance or relief’.

So we can paraphrase emergencies as unforeseen situation demanding your immediate attention and action

Think about that for a minute.

So what is an emergency to you?

Your cousin calling from the village for money to pay for his house rent?

Your old school friend reminding you that aso-ebi will ‘soon finish’?

Or seeing a beautiful pair of shoes in just the right colour and in your size oooo, for a price that you will never ever see again?!

 Sure you guessed right?

The answer is NO. These are not emergencies.

These events may put you ‘on the spot’ and have a time pressure for you to attend to them, but that just means they need urgent attention for you to either say YES or NO. And after that, you move on with your life.

So what is urgent is not necessarily important.

We sometimes confuse what is urgent as important; and similarly confuse what is important but not urgent, as such, important things do not get the attention and respect required until it becomes urgent AND important. Last minute.com things!

Often times, this time pressure can lead to less than our optimum/best output to address the issue (yes I know some of us work best under pressure, but you can do a lot more if you gave yourself more time). But I digress.

An emergency is a kin to a car accident. If the victim of the accident is not attended to, there could be dire consequences for not doing so. On arrival at the hospital, the victim is usually taken to A & E (Accident & Emergency Ward).

Here, the victim is urgently attended to and stabilized. Thereafter, the victim is moved to the general ward for recovery and observation for the period required. Note, the period the victim stays here usually dependent on the severity of the injuries and varies from person to person. When the victim is judged well enough, he/she may then be discharged.

The A&E ward is like your emergency fund. You have money for emergencies because, no matter how careful you are, no matter how much you plan, things still happen! Your emergency fund takes care of those sudden and important needs.

However, the general ward is like your cushion funds, which is money that gives you time to recover from a severe ‘financial incident’. For example, the loss of a job, the loss of a spouse, slow business or even business collapsing could significantly affect your financial plans. After this ‘incident’ occurs, you will need money to ‘tide you over’, that is, you need funds set aside for you to recover so you can get a new job, start a new business, or compensate for the time to grieve for the loss of a loved one. Whatever the case, it is clear this period can vary from person to person. It will vary for a single young man, to a middle age man with kids in secondary school and a widow with little kids.

The big point to note is, emergency funds are not the same as cushion funds. More often than note, an emergency does not last for 6 to 12 months. It goes against the very definition of the word ’emergency’.

In summary, for simplicity sake, it is recommended to have 3-6 months fund as a safety net, pls look at your personal situation and review how long it has taken you or your colleagues to change jobs once they start the process. This is a closer indication of the number of months you need to build up funds up for.

 Can you give examples of what has been an emergency to you? How did you address it?