Politics aside, there is much we can learn about our own finances due to the government shut down. Immediately, government workers are thrown into turmoil and are concerned about whether they will be allowed to come to work, scramble to finish the project they are working on before they get furloughed, and worry about the impact the shutdown will have on their finances.
Just what kind of impact will the shutdown have on your finances? The most immediately impacted people are government employees who now worry whether they will get paid for the time they work during the shutdown (if they are “essential”) employees, or those that worry that they will lose money for each day that they are furloughed at home. What about people who booked vacations (or trips back home, like me) that may occur during a shutdown? No annual leave and no paycheck for you.
Of course this is a gamble. Federal workers who work during the shutdown will likely get their paychecks, though they will be delayed until after the shutdown is over and after an appropriations bill authorizes it. But there is no say for sure whether furloughed employees will get paid, although in the 90’s they got paid even when they weren’t at work. But given this political and budget climate, it seems unlikely that people will get paid for days they didn’t work.
So what lessons can we learn from this, or any, personal financial crisis?
Note: This is written mainly from the perspective of a furloughed federal employee but these lessons transfer to anyone in a financial crisis.
Panic only leads to fear and rash decision making. Seriously, leave it alone. You cannot control whether your company will cut your job or whether the government gets a funding bill passed in time. Don’t run into a tizzy and erode your quality of life worrying about money. Your financial situation is as it is, so let’s accept it and move on.
You’re screwed. Yup. You don’t know whether you will have the same amount of money coming in to fund your regular monthly budget. Oh God please have a budget
. If not, make that priority number one. And then figure out calmly and logically how much you can reasonably expect to be short in the next few paychecks. Get out that calculator and figure out how much you lose each day you are furloughed. It may be painful but hard numbers are always better than fear numbers (ie.”half my paycheck!” “we’re gonna starve!”). So calculate the daily amount and then, since you have no way of knowing how long we will shut down for, try estimating a weekly cost. Most likely, the shutdown will be brief but it’s always best to plan for the worst. Figuring out how much of a hole you will have to cover is the first step.
Now that you know how bad it could be, let’s figure out how to mitigate the damage and pay our bills on our the smaller paycheck. Do you have an emergency fund that you can pull from? Where can you cut your spending or delay a purchase? Can you pick up some extra side work? Planning for how you will get the money to fill in these gaps gives you a chance to take care of those bills. And the sooner you plan the better. Babysitting to make some extra cash will pay you that day, but mystery shopping
usually takes a month to get paid. There are other ways to make extra cash, like day labor
, temp work, freelance work on Elance
, selling stuff on Ebay, dog walking, the list can go on you just have to be creative and find out what works for your schedule and skills. But please, don’t take out a furlough loan. Your credit union may email you and tell you that they are “here to help” by loaning you money for a fee (that’s what interest is, after all) that will only add to your monthly financial headache. Digging a bigger hole is not how you get out of a hole.
Learn from The Crisis
Crisis, especially personal financial crisis, is stressful and terrible, but often we look back and find that this terrible experience can be a catalyst for positive change. What can we do to put ourselves in a better situation financially should another personal finance crisis or government shutdown occur?
Here’s some simple steps to take to get into a better position so that a smaller paycheck doesn’t throw us into a financial fear tailspin:
Budgeting one month ahead can help your cash flow situation immensely. Having all your money for October coming from your September income means that if the government shuts down in October then you have a whole month to come up with more money for your November budget, which is what your October paychecks are going to pay for. You can learn more about how to budget ahead here
Get An Emergency Fund
I’m sure you know how important it is to save for a rainy day. And I’m also sure that you probably haven’t. In fact, 75% of Americans don’t have enough socked away in savings to ride out a financial hit like a smaller paycheck due to a shutdown. Yeah, me neither. I’m working on it though. How do you grow that emergency fund when it seems like you spend all you have? Budget it in. Make savings a line item on your budget and find ways to cut extraneous costs then add that amount to the savings line item. Also, add any extra or “found” money to your savings account. That means tax refunds, gifts, extra paychecks (if you budget two paychecks per month you will have a couple extra if you get paid bi-weekly), money from side hustle jobs, etc. Ideally, you should have a cushion of 3-6 months of expenses saved so that if the unthinkable happens (car wreck, major illness or injury, job loss, government shutdown and lost wages) then you can pull from the emergency fund to cover those costs. Just remember: don’t touch it if it’s not an emergency and replenish whatever you take out of it.
Don’t Spend All You Make
This goes hand in hand with budgeting and having money for your emergency savings, but just because you make it doesn’t mean you have to spend it all right now. Seriously. Think about how many expenses you have to pay throughout the year, or want to pay for (like a vacation), that are not regular monthly budget line items. Having a little extra left over helps cushion your budget and covers those necessary costs (like doctor appointments and medical bills) and fun costs (like vacation and Christmas gifts). Even if you allocate all your monthly funds and have a large “Miscellaneous” line item, don’t feel like you have to spend it just because it’s there.
Live Frugally, Regardless of Your Income
Frugal living does not mean cheap, sub-standard living. On the contrary, it is making wise use of your funds regardless of how much you make. You can make $200k a year and still live frugally (ask my folks). Thinking about how you intend to make your money meet your goals and spending intentionally (ie. thoughtfully) can help you meet those goals. Wasteful, impulsive spending may feel good now but all that crap from Target that you bought over the years on a whim, then threw out or gave away, is not going to put your kids through college or allow you to travel to Italy to cross it off your bucket list.
This government shutdown is a personal financial crisis for many of us. But let’s use this as an opportunity for change rather than a cause for panic.
How are you affected by the shutdown and what are you doing to mitigate your impact?