Building a healthy emergency fund is one of the first steps towards financial wellness. Experts often recommend starting with $1,000 to cover life’s most basic emergencies.
Unfortunately, we know that many employees are stress about their personal finances. Many aren’t saving for retirement, let alone saving for an emergency.
To help, we compiled some tips and resources to share with employees about how to get started with their emergency funds.
Where Should Employees Save?
For starters, an emergency fund should be a separate bank account. When money is easily accessible, it’s easier to spend.
Some employers offer “rainy day” accounts for their employees. These are separate bank accounts with funds that stop employees from tapping into their 401k in case of an emergency.
If you don’t offer this as a benefit, you can still help.
Encourage employees to save between three and six months of household expenses. In the case of a job loss by their spouse or a big expense, this prevents employees from going into debt. Getting into debt is easy. Getting out is not.
Monthly household expenses include things like:
- Mortgage and rent payments
- Electric, water, and other utilities
- Car insurance
- Health insurance
- Child care
- Essential travel expenses
A good fund should cover these expenses while income sources are restored.
Starting an Emergency Fund
Most people know they need to save for an emergency but many don’t know where to start. Your employees are probably aware that they need to save, but don’t have ways to cut their budget.
Check out these tips on where to find extra money for an emergency fund.
Employees can start by cutting back on simple things like eating out. They could also shop around for better car insurance rates or cut back on Netflix.
Help your employees find creative ways to think about saving to build their emergency fund.
What is an Emergency?
Even after saving into one, do your employees know when to use their emergency fund?
Saving is very difficult. Spending an emergency fund should only happen during an actual emergency.
Emergencies are unexpected. You may have forgotten that car insurance is due every few months, but it’s not an emergency.
If a storm rips off your roof or you have a doctor’s appointment when your son falls off their bike, you can use your emergency fund.
Emergency funds can be confusing for employees. Help them understand not only how to start saving for one, but also when to use it. Guide them to making smarter financial decisions and preparing for the unexpected.
Do you offer anything to your organization to help employees save for a rainy day?