The extent to which Americans live paycheck to paycheck without planning their finances is staggering. You may have heard the statistic by now – “40 percent of Americans can’t cover a $400 emergency expense,” according to a 2018 Federal Reserve report covered by CNN and other news outlets. How can we create financial security for ourselves and our families?
On some level, the answer is easy: make more and/or spend less. But actually doing this is difficult or impossible without some kind of plan, and business owners can be a catalyst to help employees along this journey. Here are some steps toward developing that plan.
Teach Them More About What They’re Making
On the surface, this sounds like a pretty basic idea – all they have to do is look at their pay stub. But understanding income means doing some due diligence, and business owners can help employees understand the ins-and-outs.
- Understand deductions. It’s easy to wind up with too much withholding – most people like to get big tax refunds, after all. But excessive tax refunds are really just an interest-free loan to Uncle Sam. Many employers offer a number of employee “benefits” that cost money. Basic health insurance is probably a good idea, but loading yourself down with lots of extra policies at work may not be your best bet. It’s a good idea for your employees to comparison shop the vision, dental, life, and other “extra” policies that you offer to determine if they can get a better deal elsewhere. Educate them on where and how they can shop for policies they’re interested in on the open market.
- Maximize changes for employees to make extra money. If have hourly employees, you may have opportunities for them to earn extra income. If an employee shows initiative in working extra hours, give them the opportunity to earn overtime pay.
Promote Your Employer Match on Their 401K
Every year, American workers leave millions of dollars on the table by not maximizing their 401K matches. Depending on the plan, they may be failing to capitalize on your employer 401K match program. Tell your employees how beneficial this is to their retirements. Educate them on how failing to contribute to an IRA means they miss out on tax deferrals, which allow them to save a certain amount of money every year without paying tax on it until they retire. When they retire, they’ll probably be in a lower tax bracket, so they’ll not only pay later, they’ll pay less.
Save for Short-Term Needs, Too
Surprisingly, some people are good about saving in 401Ks, IRAs, and similar vehicles, but forget to stash some money away for short-term needs. This leaves them short when an unexpected home repair or even a vacation opportunity comes their way, because you can’t easily tap into those accounts without paying taxes and other penalties. It’s a good idea for employees to build an emergency fund and even work their way toward having six month’s cash saved up in case they have bills that take them by surprise.
Help Them Reduce Debt
Excessive credit card debt plagues all too many Americans, as does car loan and home mortgage debt. Give employees access to resources that can help them plan before making large purchases. Credit can be a tool for managing cash flow, or it can become a real problem. Help them keep tabs on their credit card balances, the interest rates they’re being charged, and carefully comparison shop with personal credit management tools to do things like check their credit score, shop for better deals and find options for debt consolidation. Debt can be one of the biggest causes of stress and stress significantly affects employee productivity.
Have quarterly meeting with employees or provide an open door policy to offer guidance to employees who ask for it. Not only will this help with overall employee moral but as a business owner you will have a happier and more productive workforce.
Matt Shealy is the President of ChamberofCommerce.com. Chamber specializes in helping small businesses grow their business on the web while facilitating the connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.