Financial Wellness

4 reasons to start an emergency fund

A retirement fund (like a 401k) is a common way to plan for the future, but it’s not the only way to save!

2 minute read

Financial security isn't just about planning for the future, it's also about being prepared for the unexpected.

Life has a way of throwing curveballs when you least expect it: a busted water heater, a sudden dental emergency, a car breakdown in the middle of a winter storm. Unforeseen expenses can disrupt even the most meticulously planned budgets.

Enter the versatile emergency fund—a financial safety net ready to rescue you from unforeseen hurdles without tapping into your retirement savings. Here we'll explore the benefits of having an accessible emergency fund, and how you can get started on yours today.

Retirement vs. emergency savings

When we think about traditional financial benefits, the most likely benefit that comes to mind is the 401(k), which is a personal savings account used to build up money for retirement over time. With a traditional 401(k) offered by your employer, part of your paycheck is automatically contributed to your retirement savings each pay period.

But there are other ways to save, too. It’s just as important to prepare for unexpected expenses in the shorter term as it is to prepare for retirement. That’s where an emergency fund comes in.

Whether it’s a flat tire or unexpected medical bill, emergency savings can get you out of a tight spot, without having to borrow money or dip into your retirement savings.

Accessible when you need it, powerful growth when you don’t

An emergency fund can be kept anywhere, like that metal lockbox in your closet. But there are some distinct benefits to keeping your savings in a FDIC-insured bank account:

  • The Federal Deposit Insurance Corporation (FDIC) protects your deposits in the unlikely event of a bank failure, meaning you won’t ever lose your money.
  • You can set up automatic deposits from your paycheck or another bank account.
  • You have opportunities to earn additional cash with no extra work.

Employer-sponsored savings

Some employers will even help you supercharge your emergency fund!

When you use an employer-sponsored financial wellness partner like Palolo to set aside part of your paycheck for savings, you get a boost on the money you save.

Based on how much you save each month, you'll get an added bonus, deposited directly into your savings at the end of the boost period. Not sure if your employer uses Palolo? Check at palolo.com or ask your employer.

TL;DR: While retirement savings can be beneficial for people at certain stages of life, anyone can benefit from an emergency fund. And unlike a 401(k), you don’t need to wait to set one up—you can start saving in less than a minute!