The unexpected happens, and frequently brings along expenses. From a fender bender to a sudden illness, storm damage to your home or car, or dropping your phone down the stairs, these events can have short- and long-term consequences for your employees’ financial goals. A key strategy to mitigate those consequences is an emergency fund.
So, what exactly is an Emergency Fund?
An emergency fund is a cash reserve specifically set aside to cover those unexpected expenses and financial emergencies, large or small, that aren’t part of your typical monthly budget.
How much of an Emergency Fund is enough for your employees?
Three to six months’ worth of living expenses is a general rule, but a tool like SAVVI Financial Wellness can recommend an individualized cash reserve amount as well as provide helpful guidance toward funding that savings.
What type of account is best for an emergency fund?
Where to stash their reserve is up to your employees, but, wherever that is, those funds should be kept somewhere safe, accessible, and away from temptation to spend them. One example is a money market account. These interest-bearing checking accounts at banks or credit unions are considered low risk, and can be ideal for an emergency fund.
Why is an emergency fund important?
Simply put, an emergency fund can help employees avoid relying on credit or loans that can quickly turn into debt. If you use a credit card or take out a loan to pay for these expenses, your one-time emergency expense may grow significantly larger than your original bill because of interest and fees. An emergency fund helps employees feel more secure and less stressed financially, especially during uncertain times.