January 12th officially marked the current partial government shutdown as the longest in US history. While it is far too early to determine the full impact of the shutdown, the effects are already trickling down through the economy and causing financial distress for hundreds of thousands of individuals who rely upon the federal government as their main source of income.
Many government employees and military members are still receiving their paychecks. However, the partial government shutdown is impacting an estimated 800,000 government employees, many of whom are required to report for duty even though they are not currently being paid. The shutdown also impacts hundreds of thousands of government contractors and their parent companies, neither of which are receiving compensation during the shutdown.
The Financial Impact to Individuals Impacted by the Government Shutdown.
Many federal employees and contractors missed their first paycheck this past week. Social media was filled with pictures of paystubs showing an individual’s net pay of $0.00. In some cases, employees reported negative net pay due to mandatory withholdings.
This is a traumatic experience for those who are relying upon their paychecks to meet their rent or mortgage payment, buy food, pay for transportation expenses and cover their other bills.
Some federal employees may be able to make ends meet after missing a few paychecks. But the vast majority of Americans simply can’t make ends meet very long without receiving their regular paychecks.
A 2016 survey showed that only 63% of Americans don't have enough savings to cover a $500 emergency.
While some people may be inclined to dispute these numbers or argue you can use credit to cover a financial emergency, we can all agree that it is difficult to get by without your regular paycheck.
To add insult to injury, many of these federal employees are still required to report to work, even though they are not being paid. Those who do not have to report to work have been furloughed, meaning they are not required to report to work.
Federal employees who are on furlough may be able to claim unemployment benefits through their state, but here’s the rub: they would most likely be required to repay their unemployment benefits to the state if they later receive their back pay from the federal government.
Congress has previously granted federal employees back pay at the conclusion of governmental shutdowns. And the likelihood is strong that Congress will pass similar measures again.
How to Cope with the Government Shutdown
Federal employees haven’t been laid off, so the standard job-loss advice doesn’t apply here. Unemployment benefits aren’t a reliable option for many, and searching for a new job can take time.
This leaves federal employees with few short-term ways to make ends meet during the government shutdown.
What are government employees to do?
1. Evaluate All Expenses
Taking stock of your situation is the most important step you can take. Create a spreadsheet or break out a pad and paper and list all sources of income and all your upcoming expenses. In essence, we’re talking Budgeting 101.
List your expenses, the amount, and due date. Then consider which expenses, if any, can be skipped or paid later. Consider only paying the minimum amount if you are paying extra on any loans. You may take a short term hit with higher interests rates, but you can always make up the difference when your paychecks resume.
2. Carefully Evaluate how to Pay Your Expenses
Most people pay their expenses directly from their checking account. But like all bank accounts, each person’s checking account contains a finite amount of money. This is why everyone needs an emergency fund.
And if there was ever a time to tap your emergency fund, this is it.
Things get trickier if your emergency fund is running short. You may need to get creative with how you pay your expenses.
For example, you may need to consider using credit cards or other loans to make ends meet during the short term. This can be dangerous ground, so tread carefully.
Tip: try to avoid taking out expensive payday loans, loans from retirement accounts, or making early withdrawals from retirement accounts. These can all represent quick access to cash but may come with expensive and detrimental long term costs. If you must tap your retirement accounts early, be sure to do it the right way.
3. Open Lines of Communication
Talk to your lenders or creditors to see if there is anything you can do regarding upcoming bills. For example, you can call your landlord and explain the situation and ask if he or she would be willing to grant you an extension. Many landlords would prefer to keep a good tenant rather than start the time-consuming and expensive eviction process, followed by the lost time and opportunity cost of finding a new tenant. Use this to your advantage – and make sure you follow through with your rent payment immediately when you receive your paycheck.
You can also contact your utility companies, credit card companies, and other lenders.
Many companies are working with federal employees to make ends meet. T-Mobile and Verizon have offered federal employees payment options during the shutdown. Many banks are offering federal employees refunds on overdraft fees.
When in doubt, ask. You may get the lifeline you need.
4. Look for Quick Ways to Generate Extra Cash
There are many ways to earn a little extra cash. This can include selling unused items, taking on freelance or consulting work, or taking jobs in the gig economy, such as driving for Uber or Lyft.
Now is a great time to go through attics, closets, basements and garages to find items you no longer need, but that may have value to someone else. Become familiar with using Craigslist, eBay, and Facebook Marketplace. You can also sell old electronics and media to reseller sites like Decluttr.
Most of these opportunities won’t make you rich, but you will clear out some space and generate a little extra cash that may help make ends meet.
5. Going Forward – How to Prepare for the Next Major Financial Event in Your Life
No one expects a government shutdown – it’s not something most people consider. But this qualifies as a financial emergency. And that is something you can prepare for.
The first and most important step is creating an emergency fund. Try to start by saving $1,000 in cash savings. This should get you through most small financial emergencies (think insurance deductibles, unexpected airline ticket, etc.).
But don’t stop at $1,000. The next savings goal should be $5,000, then three to six months of living expenses. An emergency fund of this size can help you cope with a government shutdown, job loss, medical expenses and many other financial emergencies.
This is a grand goal, and it requires lifestyle changes and time. For a good starting point, read this guide for learning how to stop living paycheck to paycheck. This will get you started on a path toward real financial change and get you one step closer to financial independence.
