If you're a government worker who's been furloughed and is currently living no-paycheck-to-no-paycheck, tapping your savings is a better option than racking up high-interest debt.
As you’re reading this, the longest United States Government shutdown in history will have either recently ended or still be ongoing with no end in sight.
That means wide-ranging implications across all of the “non-essential government services,” but it also means that many, many individuals and their families are dealing with some very difficult financial situations.
Furloughed workers have been hit the hardest.
Those most directly and immediately affected by the shutdown are all of the government workers who aren’t getting paid. According to a recent report from the New York Times, the average furloughed federal worker has so far missed over $5,000 in salary.
“More than 800,000 government workers have not received pay since the shutdown began on December 22, which could create an especially dire situation for those living paycheck-to-paycheck,” explained Leslie H. Tayne Esq., Founder and Head Attorney at Tayne Law Group.
“Tightening the household budget is an essential first step. If this is not enough, furloughed employees may wish to seek other employment or apply for unemployment. However, government regulations and conflict of interest policies can restrict where these employees apply for work.”
Additionally,” she added, “unemployment benefits can take a week or more to go into effect, and employees will be required to return any benefits received once the government returns to full operations and back pay is issued.”
“Those families impacted are now worried about bills from the holidays, paying rent or mortgages, day care expenses, debts they may already have had and depleting their savings to stay alive during this time. The stress of not knowing and also the restrictions of having to still go to work with no money for gas and bills is overwhelming many.”
So what can they do?
Have a rainy day fund? Well, it’s raining right now.
Since banks and utility companies don’t seem to have shut down with the government in solidarity, workers may have to tap into their savings—if they have them—to pay their bills.
“If dipping into savings becomes necessary, consider drawing from personal savings first,” advised Tayne. “Taking from your 401(k) should be your last resort since you might be required to pay it back, which would add to your financial drain, or you might suffer a tax consequence or penalty for taking the funds early.
“Government employees can apply for a ‘financial hardship’ withdrawal from their 401(k) accounts. However, this should be considered an absolute last resort, and will be granted only if the situation meets specific hardship qualifications. So many have limited savings accounts to use and may only be able to last a month if they are lucky.”
Spend less, and find out if you can pay less, too.
Tayne also recommended talking to your landlord or mortgage company, credit card companies, and other utilities to find out what programs they can offer to reduce your payments temporarily.
“Some banks and credit unions are offering loans with low interest rates to government workers suffering financial hardship,” she said, adding that workers should resort to using their credit cards with caution and limit their spending to absolute necessities. “Consider any purchases you intended to make to be put off until you’re back to work if possible.”
“You should also consider an open and frank discussion with age-appropriate household members to discuss purchases and spending during this time,” she added. “Families affected should work to avoid racking up too much debt during these times, as it will have an even more profound negative impact in the long run.”
Stay vigilant and build your emergency fund.
We’d love to tell you that there won’t be another shutdown. Or at least, not one anytime soon. But we can’t tell you that. Because there might be! (And let’s not forget that “another” shutdown requires this one to end first.)
In the case of a future shutdown, it’s important to be prepared for that possibility.
“Having a solid emergency fund will be key to surviving a shutdown,” Tayne told us. “In general, you should always be working to pump up your emergency savings. However, if there is speculation that a shutdown is imminent, consider padding your emergency fund even more.
“While living paycheck-to-paycheck can mean saving is nearly impossible,” she added, “doing so to the best of your ability can help prepare you should a shutdown put you in a dire financial situation or if a financial crisis occurs during the shutdown.”
Already working on a fairly tight budget? “You may also consider finding a side job or taking more hours on when this government shutdown is over to bolster your savings,” advised Tayne.
Don’t worry though, this dark cloud does come with one possible silver lining:
“If you prepare for a shutdown and one doesn’t happen, or it is short-lived, you will certainly not regret having more money in your emergency savings,” she offered.
Waiting on your federal tax refund? It could be awhile.
While the government workers are being hit the hardest, they aren’t the only ones who might not be getting the checks they need to get by.
“One of the most prominent ramifications of the government shutdown is the effect on the IRS,” explained Tayne. “As a result of disruptions in the IRS, tax refunds may be delayed. Many families rely on their tax refunds to be able to pay down debts.
“In order to prepare for the delay in receiving refunds, families should carefully monitor their spending in the meantime,” she said. “If possible, avoid adding to your debt while you wait for the refund if you were going to use that refund to pay down your debt. The more you charge on a credit card, the more interest you’ll rack up over time, meaning your refund will have less of an impact when you finally receive it.”
One way to account for current shortfalls is to try and fast track your (eventual) return:
“If you were using that money for other purchases, you might want to consider getting your taxes prepared and submitted sooner, ahead of the April 15th deadline. Note that this does not affect your state taxes or any refunds you might receive through the state.”
“You might also delay purchases and financial commitments that you were relying on until the money actually arrives in order to not put yourself in a compromising financial position where you could end up with more debt and a limited ability or inability to repay,” she continued. “Revisiting your intended use of the funds and what other sources you have would be a good exercise at this time.”
If a delayed refund is putting you in a real financial bind, you can always ask for some leeway:
“You may even consider a call to your creditors to let them know your situation and see if they offer options for lowered interest rates or extension of programs you are already involved in that are helping to keep your debt down,” said Tayne.
Hopefully, this advice will help you if the shutdown is still going on or to prepare for the next one. If there’s a next one. Hopefully, there won’t be!
Andrew Tavin is a writer, comedian, and a full-time content manager for OppLoans. He graduated with a BFA in TV Writing from Tisch School of the Arts in New York City, worked as a writer for BrainPOP, and created a branded comedy video series for the National Retail Federation called “Interview Day.” He performs around the country and his writing has also appeared on Collegehumor, Funny or Die, and Sparklife.
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