With the chaos in Washington nowadays, there is quite a possibility that the government is going to shutdown. A government shutdown can be a trying time for many individuals and families, as it can disrupt their financial stability. It can also be a stressful and uncertain time for many Americans, especially for those who rely on government services or are government employees themselves.
How Does a Government Shutdown Happen?
A government shutdown in the United States occurs when Congress fails to pass appropriate legislation funding government operations and agencies. The process leading to a government shutdown typically unfolds as follows:
- Budget Deadline: The fiscal year for the federal government begins on October 1. Before this date, Congress is expected to pass appropriations bills, which determine how federal funds are allocated for various government agencies and programs.
- Failure to Pass Appropriations: If Congress does not pass the necessary appropriations bills or a continuing resolution to temporarily fund the government, a funding gap occurs. This means that the government lacks the necessary funds to continue operating all of its functions.
- Shutdown Initiation: When a funding gap arises, non-essential government services and agencies are temporarily closed until the necessary funding is approved. Essential services such as national security, law enforcement, and emergency and disaster assistance usually continue to operate.
- Implications: A government shutdown can lead to the furlough of federal employees, meaning they are placed on temporary unpaid leave. Additionally, it can affect various government services, including national parks, passport processing, and some regulatory activities. However, essential services like air traffic control and the military remain operational.
- Resolution: To end a government shutdown, Congress must pass the necessary funding legislation. In some cases, a temporary funding measure, known as a continuing resolution, may be passed to provide short-term funding and keep the government running while negotiations continue.
Government shutdowns can have significant economic and social implications, affecting not only federal employees but also businesses and individuals that rely on government services. Consequently, they are generally viewed as disruptive and are often a subject of political contention and negotiation.
Financial Moves to Take During a Government Shutdown
While it’s impossible to predict when a government shutdown will happen or how long it will last, it is however possible to take proactive steps to protect your financial well-being during such times. Whether you’re a federal employee facing furlough, a contractor affected by halted projects, or simply worried about the economic consequences, there are strategic financial moves you can make to weather the storm. We shall explore some of the best financial moves for those impacted by a government shutdown. These moves can help you weather the storm and come out stronger on the other side.
1. Create a Budget
The first step in preparing for a government shutdown is to create an emergency budget. During uncertain times, it’s crucial to have a clear understanding of your financial situation. This budget should focus on essential expenses such as housing, utilities, food, and transportation, while temporarily cutting back on non-essential spending. Creating a budget can help you understand your financial situation and make necessary adjustments to weather the financial impact of the shutdown.The most important step in my opinion is to cut back on discretionary spending until the shutdown is resolved. (Related Article: Being Practical: 8 Steps to Create a Simple Budget)
2. Emergency Fund
An emergency fund can be a financial lifesaver during a government shutdown. If you don’t already have one, start setting aside a portion of your income as soon as possible. Ideally, you should aim for three to six months’ worth of living expenses in your emergency fund to provide a cushion during times of crisis. If you don’t have one, start saving now, even if it means making small contributions regularly. (Related Article: Emergency Fund: Your First Line of Defense Safety Net)
3. Contact Creditors
Don’t wait until bills start piling up. Reach out to your creditors, such as landlords, mortgage lenders, and credit card companies, to explain your situation. Many lenders and service providers may be willing to offer temporary relief, such as deferred payments or reduced interest rates, during a shutdown.
4. Explore Government Assistance Programs
During a government shutdown, various government agencies may offer assistance programs for affected individuals and businesses. Check with local, state, and federal agencies to see if you qualify for any relief programs, such as small business loans.
If you are a government employee or contractor and have been furloughed, or if you’ve lost your job due to the shutdown, check if you are eligible for unemployment benefits. These benefits can provide a financial lifeline during uncertain times.
The government may also offer various resources such as food assistance programs, energy assistance programs, and support for housing. Research and access these resources if you need them.
5. Seek Additional Income
Explore opportunities for generating extra income during a government shutdown. This might involve taking on a part-time job, freelance work, or selling items you no longer need. Every bit of additional income can help ease the financial burden. Opportunities like online tutoring or delivery driving can also provide a much-needed financial boost.
6. Review Your Investments
If you have investments, review your portfolio to ensure it aligns with your financial goals and risk tolerance. Avoid making impulsive decisions driven by fear or uncertainty in the market. Consult with a financial advisor for guidance on investment strategies during turbulent times.
7. Evaluate Insurance Coverage
Take a close look at your insurance coverage, including health, auto, and homeowners or renters insurance. Ensure that you have the appropriate coverage to protect yourself and your assets during the shutdown. You may also consider bundling policies to save on premiums or adjusting your policies if necessary to reduce premiums temporarily.
8. Cut Non-Essential Expenses
During a government shutdown, it’s essential to cut back on non-essential spending. This includes dining out, entertainment, subscription services, and unnecessary purchases. Redirect the money you save towards essential expenses and your emergency fund.
9. Network, Collaborate, and Stay Informed
Stay connected with your professional network and colleagues. Collaborative efforts and sharing resources can help you find opportunities and support during the shutdown.
In addition, you should also keep a close eye on the news and government updates during the shutdown. Knowing when and how the shutdown might end can help you plan your finances accordingly. Being informed about changes in government services and benefits is crucial for making smart financial decisions.
10. Maintain a Positive Mindset and Prepare for the Future
Facing a government shutdown can be stressful and challenging, but maintaining a positive mindset is crucial. Stay informed, adapt to changing circumstances, and remember that these situations are temporary. Focus on your financial goals and continue working towards a brighter financial future.
After the government shutdown ends, don’t return to your old financial habits immediately. Use the experience as an opportunity to reevaluate your financial goals and create a more robust financial plan. Continue building your emergency fund and consider diversifying your income sources.
The Dollar Dad’s Final Thoughts
A government shutdown can disrupt financial stability, but with careful planning and proactive steps, individuals and families can navigate these challenging times successfully. It can be a challenging and uncertain time, but remember that your financial well-being is always in your hands. Rest assured, following the smart financial moves above can protect yourself and your family during this period of uncertainty and beyond. Creating a budget, building an emergency fund, and exploring assistance programs are just a few of the key financial moves that can help you weather the storm and emerge financially stronger on the other side.
