Almost one in five employees cannot cover a $400 emergency expense without using a credit card, according to the Social Policy Institute at Washington University, and almost as many would have to borrow money from family or friends. Having a rainy day fund can help people cover low-cost emergency expenses, without disrupting monthly budgets or accruing more debt.
Here are 4 ways to help employees weather economic hardship with a rainy day fund.
Rainy day fund vs. emergency fund
Although similar, rainy day funds and emergency funds slightly differ in two distinct ways: the size of the savings and the intended use of the savings.
Rainy day funds do not have a set amount, but they tend to carry anywhere from $200 to over $1000 in savings. Instead, emergency funds should contain about three to six months’ worth of living expenses. This is because rainy day funds are typically used for small, non-recurring payments, like an unexpected car repair or surprise parking ticket.
On the other hand, emergency funds should be used to cover large, unanticipated emergencies, like hefty medical expenses or home repairs. In the event of unforeseen job loss, emergency funds can help cover monthly necessities like rent, utilities and food.
4 ways to help employees build a rainy day fund
Rainy day funds can help employees enjoy a higher level of financial wellbeing and security. In the event of an emergency or economic downturn, employees can be assured that they have a financial cushion to help them weather financial uncertainty.
1. Start a company match program to help employees build a rainy day fund.
Company match programs can help encourage employees to save. Moreover, they can also help direct employees on where to save. For instance, employees may be more likely to funnel their savings to their 401(k) account if they know that the funds will be matched by their employer.
Instead of just matching retirement contributions or philanthropic donations, consider applying the company match model to other accounts like rainy day funds. This can help employees at all income levels build a financial cushion and improve their financial security.
2. Invest in financial advisors.
Building a rainy day fund doesn’t happen overnight, it takes time and planning. And for some employees that planning is best done with a financial advisor.
There is no clear-cut amount one should have in their rainy day fund, but with a financial advisor, employees can develop a target amount that works best for them. Regardless of one’s financial situation or level of income, a quality financial advisor will offer personalized solutions fit for any employee’s circumstance.
3. Provide financial wellness resources and programs.
Beyond financial advising, there’s a whole suite of financial wellness resources that can help employees prepare for financial hiccups. For instance, budgeting tools are an effective way to help employees break down penny-by-penny what money is incoming and outgoing. Budget mapping can also help employees find opportunities to lower their expenses and increase their savings for a rainy day.
4. Offer access to affordable lines of credit and loans for when a rainy day fund isn’t enough.
Rainy day funds grow overtime, but what if some employees need an immediate solution to a financial emergency? Firms can provide an extra layer of financial support by making affordable lines of credit and loans accessible to employees.
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