The federal government is aware that the average worker isn’t prepared to handle emergency expenses. This is why more politicians are trying to take action and set up incentives for financial safety nets in the workplace.
Several politicians have put forward proposals in the pending Secure 2.0 bill to help workers with emergency expenses, including the ability to remove up to $1,000 from their retirement accounts without facing penalties. Currently, removing funds from a tax-advantaged retirement account before reaching retirement age can result in an early withdrawal penalty.
These proposals haven’t been passed or implemented, although they may be accessible in the future. For now, workers will need to rely on different methods to manage emergency expenses. These are some of the options available.
Emergency Savings Account (ESA)
Some workplaces offer emergency savings accounts to their employees. This employer-sponsored plan allows employees to make deductions from their paychecks and move them into savings accounts. In some cases, the employer may offer matching contributions as an additional incentive to open up the account.
When an employee faces an emergency expense, they can withdraw funds they’ve saved in their ESA to cover it as quickly as possible.
Personal Emergency Fund
If your workplace doesn’t offer an emergency savings account as part of the overall benefits plan, you may want to put together an emergency fund all on your own. An emergency fund will serve the exact same purpose. When you face an urgent, unplanned expense, you can withdraw savings from the emergency fund to pay it off as soon as possible.
How do you make an emergency fund? Start by making a personal budget and calculating how much you can afford to set aside for emergency savings every month. After that, open up a savings account. Transfer the calculated savings in there. Over time, your balance will grow into a reliable safety net.
There may be times when you don’t have enough savings in your ESA or personal emergency fund. Maybe you won’t have enough time to fill up the fund before an expense comes, or maybe you’ll have already drained the savings to cover another emergency. Whatever the reason may be, you’ll want to have a backup plan to help you pay for urgent expenses without savings.
One simple option is to use one of your credit cards. Charge the expense on the card and then pay down the balance through your regular billing cycle.
You should only use this option when your balance is far from the limit — you don’t want to make repayments too challenging, or worse, max out your card by accident.
Emergency Online Loan
Another option that you could turn to is an emergency online loan. You can go to a website like CreditFresh to see whether you’re eligible to apply for an emergency online loan in your state of residence. After meeting the eligibility requirements, you can fill out an application and wait to learn about your approval status. You just might get approved!
An approved online emergency loan would let you use borrowed funds to cover your urgent, unplanned expense in a short amount of time. Once you’ve paid off the expense, you can focus your attention on a loan repayment plan. All you have to do is follow the month-to-month billing cycle.
Online loans should only be used for emergency expenses, and they should be used as secondary solutions. If you have enough savings to pay off the expense, use them. The loan application should be a backup plan.
You don’t want to get caught by surprise when an emergency expense crops up. Use one of these methods to take care of it.