Case of emergency

ICMIsaiah Opiyo explains the importance of personal emergency funds and provides tips for managing them

The words, ‘In case of emergency, break the window’ are commonly seen on the rear windows of public service vehicles. Isaiah Opiyo was struck by the similarities between these emergency windows and personal emergency funds. Here are his tips for managing your money in the event of a crisis.

1) Emergency is not a daily occurrence
Although the emergency window is fitted on the rear window of the vehicle, emergency is not a daily occurrence. Nevertheless, it can occur at any time in the course of the journey. In a situation where the emergency becomes a daily occurrence then it only shows that the driver is a careless type.

The same applies to an emergency fund. Emergencies such as job loss can occur at any time. To stay safe, as the income earner, you must have an emergency fund in place as your cushion against unplanned financial loss. However where the job loss occurs frequently, then it only confirms that the income earner is a careless type.

2) Not all occurrences are emergencies
Occurrences such as mechanical breakdown or a flat tyre are some of the horrible things that can happen in the course of a journey. However, unless they threaten the life of the passengers, the passenger is not required to break the glass.

This same principle applies with an emergency fund. Not all encounters qualify for withdrawing cash from the emergency fund – losing a mobile phone, for example, can be solved without dipping into the fund. Only occurrences with huge financial loss should qualify.

3) Not an alternative to insurance cover
Whether installed with an emergency window or not, every vehicle must have motor insurance cover in place to protect the passengers in case of accidents. The existence of an emergency window is not a substitute for motor insurance cover.

The same principle applies in managing an emergency fund. An emergency fund is not a substitute for having insurance cover – the two indeed complement each other. An emergency fund will provide a cushion against any financial loss of a slight magnitude or that uncertainty which is not insurable, for instance a job loss. Conversely, an insurance fund is necessary as it serves as a cushion for huge financial losses such as death, disability or severe illness.

4) Replace a broken window
Before taking another drive after any emergency, you must replace any broken emergency windows. This also applies in managing emergency funds. Each time you regain your financial position after an emergency such as a job loss, you must replenish your emergency fund to stay safe.

5) Emergency windows must be wide and spacious
An emergency window fitted in a vehicle must be wide and spacious to allow easy exit of passengers. Similarly, an emergency fund must be sufficient to enable you to meet your monthly bills without rushing to borrow from the bank. You should have an emergency fund equal to your minimum monthly expenses for at least three months, preferably six.