Helping Employees Set Up a Financial Safety Net

Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a small business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus.

That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net.

Rainy day funds are running dry

According to research by the Employee Benefit Research Institute (EBRI), half of workers say they have a rainy day fund that could cover three months of expenses in the case of sickness, job loss, economic downturn, or another emergency. However, only one in five families actually has liquid savings of more than three months of income. Notably, EBRI found that the lack of an emergency savings fund was not limited to just younger employees or those with lower incomes—it’s an issue that transcends age and income.

When faced with an emergency, employees without a financial safety net may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund can help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Craig Copeland, Senior Research Associate at EBRI, explains, “Given the low percentage of workers and families who have sufficient savings to cover a loss of income for any extended period, emergency savings programs could be directly beneficial to workers and indirectly beneficial to employers through higher employee satisfaction.” In fact, more employers than ever are encouraging their employees to save for unexpected financial emergencies.

Emergency fund 101

So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend:

Saving at least three to four months of expenses—If employees have a financial safety net, they’ll feel more confident focusing on other important goals like retirement or home ownership.Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation. In fact, our current recommended allocation for an emergency fund is 30% stocks and 70% bonds.Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place.

With an emergency fund, your employees have the peace of mind of knowing that they have a financial cushion in the case they need it now or in the future.

Helping employees save for today—and someday

Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is “more than just a 401(k) in that it provides:

Quick and easy emergency saving fund set-up

Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts.Linked accounts for big picture planning

Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund.Personalized advice to help employees save for today (and someday)

By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. In fact, by using our automated tools and following our recommended investment advice, employees could earn 38% more money over 30 years compared with the average investor.

Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

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Wendy Bobo