Money Management

Setting your employees up with emergency savings could benefit them and you. Read on to learn more. [[{“value”:”

Life has a way of surprising people financially — and not always in a good way. That’s why it’s important to maintain a solid emergency fund at all times. You never know when something like a home repair, car problem, or medical issue might wreak financial havoc.

But in a recent survey by the Employee Benefit Research Institute, only 4 in 10 workers feel at least somewhat prepared to handle an emergency expense of $5,000. What’s more, 3 in 10 workers say they feel ill-prepared to cover a $500 expense that’s unexpected.

Now, it used to be workers’ sole responsibility to save money for unplanned bills. But thanks to a recent change, workplaces can help by offering emergency savings accounts to their employees.

But in the aforementioned survey, only about 2 in 10 workers report that they’re currently offered an emergency savings account at work. So that’s one perk your business may want to strongly consider.

How you can help your employees save

The SECURE 2.0 Act changed several rules related to retirement savings and savings in general. And one thing it did was allow for the establishment of pension-linked emergency savings accounts, which are short-term savings accounts that are maintained as part of individual retirement plans, like 401(k)s.

Employers have several options when offering these emergency savings accounts. They can enroll workers automatically, make contributions to these savings accounts on workers’ behalf, or allow workers to contribute through payroll deductions, the same way 401(k) plans are typically funded.

Employers can allow employees to allocate up to $2,500 a year for emergency savings account contributions. And unlike 401(k) withdrawals, which can incur a 10% penalty when taken before age 59 1/2, there are no penalties associated with taking withdrawals from an emergency savings account. This gives your employees access to money they can truly tap in a pinch.

Everyone stands to win with emergency savings

If you don’t currently have an emergency savings account on offer for your employees, you may want to consider one. The benefit to your workers is obvious — they get access to money they can use when unplanned bills arise. But as a small business owner, you can benefit, too.

When workers are less stressed about finances, it tends to result in better productivity. And the more short-term savings they have, the less stressed they’re apt to be about sudden bills.

Also, offering this benefit could be a great way to retain employees who might otherwise jump ship for better benefits and pay. There’s a cost involved in hiring and onboarding staff, so keeping your current workers happy could benefit your company financially. That way, you don’t have to go through the hassle of replacing people as often.

Plus, if you’re able to offer an emergency savings account to your workers, it’s just plain the right thing to do if you care about the people you employ. So it pays to review your company’s finances and see if an emergency savings account is something you can start to provide and perhaps even contribute to as well.

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The Costco Executive membership could be a waste of money if you don’t spend enough or take advantage of the perks. Here’s how to decide whether to upgrade. [[{“value”:”

Costco offers two different membership tiers. There’s the Gold Star membership, which costs $60 annually, and the Executive membership, which costs $120.

If you are joining the warehouse club, you may be tempted to spring for the upgraded membership because it comes with some perks that the Gold Star membership doesn’t offer. But, would doing so be a waste of the hard-earned money in your bank account, or would it be the right choice?

Here’s how you can decide.

How much money do you spend at Costco?

There’s one big question you need to ask yourself first that will help you to decide whether paying an extra $60 for the Executive membership makes sense. You need to ask yourself how much money you actually intend to spend at Costco over the course of the year.

The reason this is important is because the Costco Executive membership offers an annual 2% reward on qualifying purchases. Once a year, you get a reward equal to 2% of all that you spent at Costco throughout the year — up to a maximum reward of $1,000.

Now, if you do some quick math, you can see that if you are spending $3,000 per year at Costco, you will end up earning $60 back because of it. So, if you break out the credit cards often enough that you spend this much or more, the Executive membership is worth it for you. The cash back you earn will cover the added cost of the membership upgrade.

If you spend more than $3,000, your membership would more than pay for itself. Say, for example, you spent $6,000 over the course of the year at Costco. You’d get $120 back and Costco would have paid you $60 for choosing the upgrade.

If you spend less than $3,000, though, then you’d be better off with the Gold Star membership unless you take advantage of the other exclusive perks the Executive membership offers.

Will you take advantage of other Executive membership perks?

While the 2% annual reward is the biggest draw for most people, there are other benefits to Executive membership.

These advantages include bigger discounts on other services offered through Costco’s partnerships, including lower cost checks from its check-printing service or discounts on auto insurance. Free roadside assistance is also available for those who are covered through Costco’s auto insurance program.

If you’ll spend less than $3,000 per year at Costco, you’ll want to read up on the Executive membership perks carefully. If you aren’t going to use its other services, like home, auto, or pet insurance or printing services, then you’d most likely be better off going with the Gold Star membership tier.

For many people, the big draw is Costco gas and their warehouse club purchases, not these extra services — so the additional savings from them may not be a reason to pay the upgraded membership fee. But it all depends on what your goals are for joining the warehouse club and what your shopping patterns happen to be.

The important thing is, by taking the time to understand the value of these added benefits, you can make the choice that’s right for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Are your savings enough to get through a layoff? Here’s how to know. [[{“value”:”

The U.S. economy is strong at the moment and unemployment is generally low. In spite of that, almost 1 in 3 Americans are experiencing layoff anxiety this year, reports Clarify Capital. But part of that anxiety could boil down to inadequate savings.

Clarify Capital also found that 54% of Americans have three months’ worth of emergency savings or less, while 18% have no emergency fund at all. But here’s the amount of money you should aim to save so you can get through a layoff.

When you have an “ordinary” job

The amount of money you should aim for in a savings account should really hinge on the type of job you have. As a general rule, if you have an “ordinary” or “typical” job, you should aim to sock away enough money to cover three full months of essential living expenses at a minimum.

Some of the expenses you’ll want your emergency fund to cover may include:

Rent or mortgage paymentsCar payments and insuranceUtility bills, including your cellphone and home internet serviceHealthcare and medicationFoodPersonal care items

The logic goes as follows. You might have the sort of job where most companies need one of you. But it can still take time to send out resumes, schedule interviews, attend those interviews, wait for a hiring decision, and negotiate an offer. So by having three months’ worth of expenses in the bank, you buy yourself a period of time to go through that process without automatically having to take on debt — namely, by charging your expenses on a credit card and paying it off over time.

When you have more of a niche job

If you’re a higher-level employee or have a job that’s pretty unique — meaning, there’s not one of you at the typical large-sized company — then it’s generally a good idea to save enough money to cover six months of essential living expenses or more. The reason? If your job is less common, whether because it’s an upper-level position or because it’s a niche role, then it may take well more than three months to get hired after a layoff. So in that case, you need the extra time to look for work and the financial protection to be able to do so.

Let’s say you only have three months’ worth of expenses socked away in the bank, and after about 12 weeks of job-hunting, you’re unable to find a comparable role to the one you were let go from. At that point, you may have to either accept a lower-paying or lower-level role, or otherwise take on debt so you can continue your job search. Neither situation is ideal.

Make sure you’re well protected

Even in a strong economy, it’s possible to lose your job through no fault of your own. If you’re worried about getting laid off this year, do your best to build your savings up to a level that offers the protection you need. It’s a good way to make an otherwise stressful situation just a bit less harrowing.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Going freelance can change your life in many ways — for better or worse. Keep reading for a few potential pitfalls you might encounter. [[{“value”:”

Freelancing has become hot. Work platform Upwork found that last year, freelancers made up 38% of the U.S. workforce — 64 million of us did freelance work in 2023 (up 4 percentage points from 2022, to boot). We must be onto something — and indeed, freelancing comes with great perks. Unfortunately, it also comes with drawbacks. Here are three you should know about, as well as how to manage them.

1. No paid time off

Admittedly, I wasn’t always privy to loads of vacation time in my non-freelance jobs — tiny nonprofit museums aren’t exactly known for their employee benefits. But even getting a week or two of paid vacation time a year made it a lot easier to get away from work occasionally. Freelancers don’t get any paid time off — when we’re not working, we’re not earning.

If you, like me, tend toward being a wee bit of a workaholic, becoming a freelancer might result in a situation where you end up burned out because you never take time off. I have gotten better at this, but it took a lot of soul searching and also making a special move during the last few months of 2023. My favorite feature of my high-yield savings account is the ability to create sub-accounts for different purposes. I made a new one for paid time off, and started chucking money into it (after taking taxes out, of course — more on freelance taxes below).

I haven’t dipped into this DIY PTO yet, but I have an overseas trip coming up next month and will likely use some of it then. Regardless, I intend to keep adding to it — $100, $250, or more here and there will grow it over time.

2. Higher health insurance costs

Employers that offer health insurance benefits also cover some of the cost. I’ve talked to several people who used to freelance, and health insurance cost was the most common reason given for going back to work as an employee. This isn’t surprising — last year, I paid $500 a month for health insurance, and by upgrading my plan for 2024, I took on a monthly cost of over $700 (and dental insurance is extra). And that’s for a plan that covers just me. I shudder to think what my costs might be if I was also paying to insure a spouse, children, or both.

Admittedly, I did decide to splurge during Open Enrollment for 2024, after many years of sub-standard (yet still expensive) health insurance. I don’t qualify for any government assistance with my insurance costs, but depending on your income and family situation, you might. So explore your options for health insurance on HealthCare.gov.

One of the best ways to save on health insurance coverage if you’re turning to the marketplace is to opt for a high-deductible plan that allows you to open a health savings account (HSA). These have great tax benefits, both now and for your future.

But not all insurance plans qualify for one — if you’re buying coverage for only you, your deductible must be at least $1,600, but your out-of-pocket-maximum cost must be below $8,050. The limits are higher if you’re covering a family. A high-deductible plan might not be a good idea if you’re actively managing a health condition — but if you’re generally pretty healthy, consider it.

3. More complicated taxes

Finally, another major bummer about going freelance is taking on a more complicated and likely more stressful tax situation. As a freelancer, your income doesn’t come to you less taxes, like it would if you were a traditional employee. Instead, you receive 1099 forms at the beginning of the year, showing all you were paid by a given client over the previous year.

Your tax obligations are also ongoing — you have to pay estimated taxes four times a year, in January, April, June, and September. This means planning ahead — personally, I take a percentage of every dollar I make and leave it in yet another sub-account of my savings. When taxes are due, it’s not hard to pay what I owe and I’m not left scrambling.

I have never enjoyed messing with taxes, and while using self-employed tax software would likely be cheaper, I hired an accountant instead. Paying extra for more peace of mind is worth it for me (plus, as a small business expense, it’s tax deductible). It might be worth it for you, too. Investigate your options here.

After all this gloom and doom about freelancing, I have to note that going freelance has easily been one of the better financial decisions I’ve made. I love being a writer and editor, and getting to do the job without the obligations (read: endless meetings) that come with traditional employment has made it that much better.

Plus, I have the kind of freedom and flexibility with my work that I’ve never had before, period. Despite the downsides, I’m a happy freelancer. If none of the above sounds like a deal breaker to you, you might enjoy it too.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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I lost money because I didn’t understand my savings account. Learn from my mistakes to avoid paying hundreds of dollars in fees. [[{“value”:”

It was my first time opening a savings account. Could you blame me for making a few mistakes? Granted, they cost me hundreds of dollars, and I saw red the first time my bank charged me three $35 back-to-back overdraft fees, but hey — a learning experience. Right?

Riiight.

Learn from my mistakes, so you don’t have to make the same ones. Here’s how to avoid common savings account mistakes, beginning with the most frustrating of them all: overdraft fees.

1. Overfunding savings and underfunding checking accounts

Weird for a personal finance writer to advocate for taking money out of your savings account, but bear with me. When I first opened a bank account, I underestimated the potential for overdraft fees. I overfunded my savings account and, as a result, underfunded my checking account.

Unbeknownst to me, my bank let me overdraw my account and charged me $35 per overdraft. I remained unaware I’d overdrawn my account until I received my monthly statement — by then, I’d overdrawn three times and owed a total of $105!

You might be tempted to skimp on padding your checking account because your savings account pays interest. But most savings account interest rates are low. A single overdraft can eat into your returns and then some.

To avoid overdraft fees, consider padding your checking account balance with money you’d otherwise put in savings. Or, switch to a no-overdraft bank. You could save hundreds.

Tip: These days, banks charge less for overdraft fees. However, some banks are more upfront about fees than others. Many banks, including SoFi and Discover®, don’t charge overdraft fees at all.

2. Failing to maintain minimum balance requirements

On the flip side, banks have charged me for underfunding my savings account. Some banks charge you a fee for failing to maintain a minimum account balance. The irony of this fee is it can cost savers more savings account interest than they’d earn in an entire year.

Say a bank charges you a modest $10 minimum account balance fee for not leaving enough money in your account. If your original account balance was $1,000, that’s 1% of your savings. According to the FDIC, the average savings rate is 0.46%. With a typical savings rate, it’d take you over two years to recover from that minimum account fee!

Be wary of banks with minimum balance requirements. Alternatives exist. Many of the best high-yield savings accounts (HYSAs) charge $0 per month, even if your balance is low.

3. Putting savings into low-interest accounts

For once, FOMO had it right. I spent five years stuffing my savings into low-interest accounts because I didn’t realize interest rates mattered. Granted, rates were low across the board, but that’s not true anymore. The Federal Reserve has raised the federal funds rate big time, and banks have followed suit, raising savings account rates.

Even if you don’t deposit much, the difference between putting money in a low-yield savings account and a high-yield savings account can be measured in the thousands of dollars.

Say you have $10,000 to deposit. In an account with a 0.50% APY, that money would grow to $10,513.60 in 10 years. But in a modern 4.00% APY high-yield savings account, that money would grow to $14,908.33.

I’d be lying if I said savings accounts were for everyone. Even HYSAs are best suited for short-term savings or as part of a diversified investment portfolio. Banks change rates all the time — an account that offers a 4% return now could offer half that 10 years from now.

It’s not a terrible idea to toss savings into a high-yield savings account and call it quits. Cash in the bank is typically guaranteed up to $250,000 per account owner, the FDIC insurance maximum. But for better yields, consider looking into savings account alternatives. The costliest savings account mistake could be opening a savings account when another account type would move you faster toward your financial goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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