It’s time for everyone to enjoy the benefits of emergency savings.
Emergencies happen. Whether it’s a medical issue, car accident, house repair, or something else, you can be hit with unexpected expenses (costing thousands of dollars) at any time.
But you don’t need to worry. You have money set aside for these instances, and you’re not alone. In the recent, “America Saves Week Survey,” 63% of respondents reported that they have, “sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit.”
However, others are not so fortunate and pay for these expenses using payment programs (20%), borrowed money (15%), credit cards (15%), and reduced spending on other things like eating out and cable/satellite television (23%), according to the recent, BankRate.com Money Pulse survey. And these options can be expensive. Per the Consumer Financial Protection Bureau, annual percentage rates on payday loans can be “almost 400%” and “range from about 12 percent to 30 percent” on credit cards.
This means that you have employees who do not experience all of the benefits of an emergency savings which can help them:
Managing cash flow with limited resources can be challenging. Car, mortgage, tuition, insurance, and other payments are due each month. With surprise expenses, family obligations, household tasks, and more, the stress can really add up.
In fact, the latest survey on “Stress in America™” by the American Psychological Association, indicates that, “stress about money and finances appears to have a significant impact on many Americans’ lives.” According to the latest results, 64% of Americans reporting that money is “a somewhat or very significant source of stress.”
An emergency savings can help eliminate these worries. When employees know they have funds set aside to help them out when “life” happens, they can focus on their responsibilities at work without being distracted by financial burdens.
Use Wages More Efficiently.
With funds allocated for emergencies, employees can pay monthly bills, and set aside funds in long-term savings with their wages. Then, they can use the “leftover” spending-money on restaurant visits, “date night” out, cable television, or other things they enjoy.
This not only helps employees manage cash-flow, but it allows them to get some R&R on their days off with their disposable income so they can reenergize for the workweek ahead. After all, numerous studies report that rest helps us recover mentally and physically so we can be more creative and energetic. And “people who take ‘better breaks’ experience better health and increased job satisfaction,” per Baylor University.
With wage efficiency, employees can be happier and more productive… leading to better, business outcomes.
Reduced 401(k) Leakage.
As you probably know, “most people who borrow against their retirement account will never fully recover,” states U.S. News & World Report in “Your 401(k) Loan Is Costing More Than You Think” by Kristin McFarland. “You not only lose out on that tax-deferred growth, but you also have to repay the loan with after-tax dollars,” and “it will take you longer to repay your pre-tax loan with after-tax contributions.”
Your employees probably don’t consider this when they need fast relief from financial stressors. But with emergency savings in place, they will be less likely to borrow from a 401(k) to cover unexpected expenses. Then, they can take full advantage of all the intended benefits and savings offered by their employer plans.
Many of your employees are missing out on these benefits so how can you help them?
You provide financial education and guidance, but for many, this is not enough.
According to a study by John Lynch, director at The Center for Research on Consumer Financial Decision Making at the University of Colorado, quoted in The Wall Street Journal, there are “psychological impulses” and “blind spots” to forecasting future income behind spending patterns. Based on his research, “people think about income (inflows) but don’t really focus on rising expenses (outflows) so they end up thinking they can afford things they can’t.”
Because of these psychological factors, it can be challenging to change employee behaviors on saving money… so don’t waste time, money and effort on it. Instead, automate the entire process and create a “done for you” saving-method for your employees.
Today’s technology allows employees to save money with very little effort. They simply log onto a mobile app and specify how much they want taken out of their paycheck for savings. Then, this amount is deposited directly into a private and FDIC-insured, emergency-savings account each month. Employees can also pay bills and place the remaining funds into a separate account for other expenses… all done automatically.
It is a simple, one-time set-up with information provided directly from your retirement-plan record-keeper or payroll provider.
And according to the recent Forbes article by Maggie McGrath, “The Single Best Thing You Can Do For Your Financial Wellbeing,” this automated savings is a key factor to creating wealth and avoiding procrastination. “When there’s an automatic deduction from your paycheck or an automatic transfer from your checking account to your savings account, there’s no chance of human error interfering,” she states. “No chance of forgetting, no chance of putting it off. The money goes from Point A to Point B, simple as that.”
With automation, all employees have to do is check their balance online. They know exactly how much “spending money” they have for fun activities and other things. Bills are paid on time, and their emergency savings are in place. Stress goes down, wages are used efficiently and 401(k) borrowing becomes rare.
Your employees get all of the benefits of having emergency savings, and you execute a financial-wellness plan that works to create a less costly and more productive workplace.
Do you want to help your employees save for emergencies?
For more information about automating this process, click here.