It is hard to overstate the importance of having money saved for a rainy day. Having emergency savings stashed away means that when life throws you a curveball, you can manage it without going into debt. At the very least, it limits how much more debt you take on. However, that’s easier said than done for many Americans.
It’s nearly impossible to build emergency savings when every dime you make goes into making ends meet. For some, there is barely enough money to make it until the next payday. Currently, many employers are offering workplace benefits that will help their workers put money away.
Many Americans realized just how important having extra money was in the past couple of years. The pandemic drew that importance into sharp focus as prices and unemployment soared. Additionally, many Americas saw surprise medical bills or funeral expenses connected to the pandemic. Jeff Cimini, senior vice president of Voya Financial, told CNBC, “COVID did, I think, reveal the need for more emergency savings, particularly for low and moderate-income households.”
How Employers Are Helping Workers Build Emergency Savings
Most employers offer 401(k) plans. However, most would like to save those funds for retirement. Unfortunately, several people will pull money from those funds when times get lean. If those people had emergency savings, they wouldn’t have to dip into their retirement fund. Now, employers are offering more expansive workplace benefits to help workers hold on to their retirement funds and put money away.
For instance, some plan sponsors allow after-tax contributions in retirement plans to build emergency savings funds. These contributions allow workers to build emergency savings funds while keeping a healthy retirement package.
David Amendola, a senior director with Willis Towers Watson spoke to CNBC about the rising popularity of these accounts. “Employers are increasingly starting to adopt and think about different ways to implement these types of emergency savings accounts so that employees can access funds more easily and in a more target fashion.”
Also, many employers offer Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA). Employees contribute a set amount of money to these accounts every payday. These savings accounts are specifically for medical costs. So, if a worker has an unexpected medical bill, they can use these accounts to cover the bills. This allows them to have more money free to put into an emergency savings account.
Only workers who have high-deductible health insurance plans have access to these accounts. There are also limits on how much money they can put in. Legally, a worker can contribute up to $3,650 every year for single coverage and $7,300 for families.
In short, if you’re looking to build an emergency savings account, speak to your employer. There’s a good chance you can get in on one of these programs to get the most out of your money.