Your water heater fails. Your car breaks down on the side of the road. Your wife lost their job because of the global epidemic. Life is full of challenges, and some are more stressful and expensive than others. As a small business owner, you have probably seen how financial emergencies can affect your employees. Stress not only affects employees ’personal lives, it can also affect their performance, attendance and attention.
That’s why an emergency fund – enough money to cover at least a few months of expenses – is an important part of your employees ’overall financial plan. However, many lack this important safety net.
Rainy day funds are drying up
According to research by the Employee Benefit Research Institute (EBRI), half of workers say they have a rainy day fund that can cover three months of expenses in case of illness, job loss, economic downturn or any other emergency. However, only one in five households has liquid savings of income for more than three months. Significantly, EBRI has found that the lack of emergency savings funds is not limited to young employees or low-income people – it is a problem that transcends age and income.
When faced with an emergency, financial security netizens can resort to credit cards, take out pay-day loans, and even campaign for their retirement savings by initiating early withdrawal penalties and hindering the progress of their retirement savings. Having a solid emergency fund can help push employees into a difficult financial crisis with far-reaching implications. Craig Copeland, Senior Research Associate at EBRI, explains, “Given the low percentage of employees and households with sufficient savings to reduce income, emergency savings programs can be directly beneficial to workers and indirectly beneficial to employers. Higher employee satisfaction. In fact, more employers than ever before are encouraging their employees to save for unforeseen financial emergencies.
Emergency Fund 101
So, what should your employees consider when setting up an emergency fund? To improve, we recommend:
- Save at least three to four months:If employees have a financial security net, they will feel more confident to focus on other important goals, such as retirement or home ownership.
- Emergency Fund Investment –By investing their money without depositing it into a low-interest savings account – employees do not run the risk of losing purchasing power over time due to inflation. In fact, our current proposed allocation for an emergency fund is 30% stock and 70% bond.
- Automate itSetting up a regular, automated deposit can help employees stick to their savings plan as it reduces the effort required to move money in the first place.
With emergency funding, your employees find peace of mind that they have financial cushions if they need them now or in the future.
Helping employees save for today and one day
Some employees may feel that they have to choose between creating emergency funds and saving in their workplace retirement plans. But it doesn’t have to be a choice. With the right 401 (k) plan provider, your employees can save for retirement and at the same time create an emergency fund. For example, the Betterment platform says, “It’s more than just 401 (k) that it provides:
- Quick and easy set up emergency savings funds
The improvement makes it easier to set up an emergency savings fund – helping employees make sure they don’t have to sink to 401 (k) if they face unforeseen financial problems. If you’re not sure how much your employees can save, Betterment can calculate it for them using their total income, pin code, and research from the American Economic Association and the National Bureau of Economic Research. Save to create emergency funds They want to reach their goals on their desired time horizon. Using our goal predictions, employees can model how much they need to save each month to reach their emergency funding goals and see what situations they can look at considering monthly savings, time horizons and target amounts.
- Linked account for big photo planning
Our easy-to-use online platform links employee savings accounts, outside investments, IRAs এমনকি even spouses’ assets, to create a real-time snapshot of their money, making it easier for them to see the big picture. This means that in a single, overall approach, employees can track both their 401 (k) plan account and their emergency funds.
- Personalized tips to help employees save for today (and one day)
By providing personalized advice, Betterment can help your employees move toward long-term and short-term financial goals. In fact, using our automated tools and following our recommended investment advice, employees can earn 38% more money in 30 years than the average investor.
Ready for a better way to help your employees prepare for the inevitable and the unexpected? Talk to Betterment today.