A couple of months ago I attended a personal finance workshop that challenged us to set aside 18 to 24 months in emergency savings. 18 months was too much an ask and my mind settled for the renowned standard of 3 to 6 months. Today’s market realities, however, reveal that desired work and business opportunities do not come as easily as it was during the Industrial Age. It can take longer than 6 months to get re-absorbed into the employment sector or land that big-ticket client after a major customer exit. Rainy days may easily turn to extended periods of heavy storm and unprecedented fog. Building a 24-month fund – in light of this – sounds decent but what about the attractive investment opportunities one would like to take advantage of or the pressing financial obligations requiring attention? Perhaps a longer term personal finance strategy would go a long way in managing financial exigencies.
Let’s consider the example of large corporations who as part of their occupational health and safety policies have documented guidance to prepare for and respond to all emergencies. Their commitment is towards the safety and well-being of it’s people and communities, the timely resolution of emergency situations and the protection of company and personal properties. Underpinning this practice is the Emergency Management Cycle model that allows organizations and individuals alike to anticipate disasters likely to affect them and think of ways of reducing impact or preventing the disasters altogether. A personal finance lens would probably describe the phases in the cycle as follows:
- Mitigation: How can financial emergencies or their damaging effects be prevented? Budgeting is a financial discipline that goes a long way in averting unnecessary financial pressures. Another mitigation strategy would be to annually take out medical, property and / or life insurance for meeting regular and adverse circumstances
- Preparedness: How can we prepare to handle financial emergencies? Core to financial preparedness is financial literacy which empowers individuals to make informed and effective spending, earning, saving / investment, protection and borrowing decisions. Individuals with a basic or advanced grasp of financial concepts manage money better
- Response: What actions should be undertaken during financial emergencies? Anxiety can make the brain lock either temporarily or for abnormally long periods of time. Defining – in advance – possible emergencies that could occur and their corresponding responses (including reaching out to family or friends for help) can quickly avert further devastation. Another culprit to inaction is wanting to keep up appearances. Whilst responding to financial distress can be a very humbling experience, the resulting benefits make the process all worth it
- Recovery: What actions should I take to return to (a safer) normal? Restoring one’s physical, emotional, economic and social well-being is the goal of this final stage. Severe debt or financial loss can cause depression and even suicide. Part of a successful personal strategy is being open to counselling, psychotherapy and other professionally prescribed assistance. These medical approaches will not only calm the body, mind and spirit but also bring fresh and exciting alternatives to living
EASY? When I begun this blog and up-to the time of conceptualizing this series, I did not foresee any emergencies. All views were from the simple-heart of a personal finance enthusiast. I am currently dealing with an uneasy situation and relieved to have one or two things in place. Still, I am anxious. Researching for this article has helped me appreciate that disasters exist through time and I need not beat myself up or anyone else for that matter. I choose to respond in faith that God will bring everything to a new and peaceful normal. That said, I can’t think of a better closing for this piece than “By faith Noah, being warned by God concerning events as yet unseen, in reverent fear constructed an ark for the saving of his household…” ~ Hebrews 11:7a
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