I am very happy that we were able to avoid a second government shutdown. But while I am glad we didn’t have a second shutdown, I am still very disappointed that so many people, including myself, had to experience a shutdown of such magnitude. So many people were unfairly and unexpectedly put into financial limbo. The honest truth is, we cannot prevent future government shutdowns. However, we can use this experience as a teachable moment. We can learn and identify how to protect ourselves financially going forward.
Here are my takeaways:
1. No one will understand or care more about your financial situation than you.
As the shutdown was announced and progressed, it was very disheartening how un-bothered and disconnected the current administration and many others were of the plight of the more than 800K federal workers impacted by the shutdown. For example, one member of the administration said they didn’t understand why people were having such a hard time financially. Another member suggested that government employees go out and get loans to cover their expenses or borrow money from friends and family. Then you had this, one person from the administration suggested that those affected by the shutdown offer to do chores for their landlords in exchange for rent. (I don’t even know how to begin unpacking that last statement).
While politicians slugged it out in Washington, the shutdown went on for five nerve racking weeks. Five weeks of not receiving a paycheck. Five weeks of less money or no money to run our households. Five weeks of fear, cutting back or going without. To keep it simple, many people were shook.
Now that the shutdown is over and the government is back open, many people have started to receive back pay, but some have not. Many government contractors and people working in jobs providing support services to government agencies (custodial, transportation, food services, etc...) will not receive back pay. An unfortunate reality is that some people will never recoup any of the money lost as a result of the shut down. For those who are blessed to receive back pay, that money may not cover everything that was lost and accrued financially during the shutdown. As we all know playing catch up is always more expensive than paying on time. Late fees add up quickly.
2. The reality is, too many people aren’t even living paycheck to paycheck.
Another glaring takeaway I noticed from the shutdown was how quickly people were in real financial jeopardy. Things like repossessions, evictions and disconnections were on the table with missing just one check. To get to this point you must already be behind on payments or be held to stricter service agreements of secondary or tertiary creditors who will call their loans after missing just one payment.
We always say that a lot of Americans live paycheck to paycheck. The government shutdown showed an even darker scenario. A scenario where a lot of people working full time jobs are still not able to make ends meet. They are floating money or just flat out behind with expenses. These scenarios are not being discussed. This is the reality for so many.
The term living paycheck to paycheck implies a tight time frame from receiving money and bills being due. And despite the tight timeline, money is still there to make ends meet. Unfortunately, we saw a reality that proved some are actually worse off than living paycheck to paycheck.
3. Stay ready ,so you don’t have to get ready
Imagine, all of sudden, through no fault of your own you have lost your only source of income. How would you make ends meet? How would you pay bills? How would you put food on the table or keep a roof over your head? This is the exact situation many government employees and people working in government supporting industries found themselves in during the shutdown.
To be ready we all need to ensure we have these 3 things in our personal finance playbook.
A) We need financial goals
Having financial goals for yourself and your household is the first step to having a direction for your financial future. Having financial goals help you identify where you want to be 6 months, 2 years, 5 years or even 15 years from now. Having financial goals will help direct your savings, career, investments, lifestyle and so much more. Most importantly having financial goals helps you identify the steps you need to take to move forward. We cannot make purposeful progress without having a plan and a road map. Setting financial goals gives you the plan.
The Wealth Culture Academy provides a free course entitled Ready, Set, Goal! to help people learn how to set financial goals for their household.
B) We need to live on a budget
Not having enough money to make ends meet is one problem. Over spending is another problem. So many people facing financial hardship must overcome not having enough money, overspending or both. Having a budget helps you understand if you are not making enough, if you are overspending or both. When you have a budget, you account for all of the money you have coming in and going out.
When overspending is the problem, people must face the reality of their choices and make changes to their spending behavior. Tough choices may need to be made to get spending under control. When not having enough money is the issue, sometimes you have to adjust your lifestyle or consider job training that will allow you to earn income to live the lifestyle desired.
Everyone’s situation is different. And making changes to impact our financial situations is sometimes easier said than done. Most people who have been able to overcome their financial challenges will tell you, in some form or fashion they had financial goals and they had a budget. Having a budget is your road map or GPS. Your budget gives you the directions to arrive at your financial goals.
Get your free monthly budget template courtesy of The Wealth Culture Academy.
C) We need emergency savings
An emergency fund is savings set aside to cover household expenses, up to a given period of time. This saving is meant to cover unexpected loss of income. Well funded emergency funds will also cover unexpected expenses. If you have emergency savings set aside and experience being terminated, laid off or furloughed you will have some cushion. You will have peace of mind an not have to immediately worry about money.
We have little to no control over when a financial emergency or unexpected expense will pop up. Having an emergency fund is a must. An emergency fund will have you ready for most unexpected financial situations. Many financial experts suggest having 3 to 6 months of living expenses in an emergency fund. Here at The Wealth Culture, we recommend having at least 6 months of living expenses set aside. Having that money set aside will help you stay afloat in case of emergency, while you figure out what your next move will be.
Our course Budgeting Is BAE will walk you through the process of creating a budget for your household and highlights the importance of establishing an emergency fund .
I hope this sheds some light on how we can protect ourselves in the future. After all, the likelyhood of future government shutdowns is highly probable. What financial takeaways did you have from the government shutdown?