We’re now in the longest government shutdown in history, and the effects of the shutdown are hitting close to home. A friend of mine is an essential federal employee who lives here in Georgia. She already missed one paycheck, and the next one is uncertain. She said that her work has forbidden the employees to work on the weekends or at night during the shutdown. She’s not getting paid by her primary employer, and she can’t take the odd job to make ends meet - yet rent must be paid and groceries aren’t free. She’s depleting her savings, and after that, her parents offered to help.
A recent Washington Post article (“Now on Craigslist, Facebook: Household items from workers trying to make ends meet,” 1/10/19) recounts that furloughed workers are selling personal possessions to help pay the bills. My friend is one of the more fortunate federal employees, because she has savings and family support. But she and her counterparts have learned a hard truth: you never know when forces outside your control could stop your income stream.
You can’t predict when you’ll experience an emergency, like a government shutdown, job loss, or unexpected car repairs. You can prepare for that rainy day with an emergency fund. An emergency fund account is an account where you stash cash for emergencies – a not-to-dip-into-unless-it's-a-real-emergency savings account. How much you keep in your emergency fund depends on your expenses and your comfort level. My rule of thumb is to keep at least 3 to 6 months of basic living expenses in cash. If you have a second income source from a side hustle or a partner, you may want to save only 3 months; if not, consider saving at least 6 months. To determine your basic living expenses, add up how much you spend on the necessities each month: rent/mortgage, utilities, gas, groceries, and debt (if any) and multiply by 3 or 6. Save this cash in a high interest savings account, such as an online savings account. These accounts often offer higher interest rates than traditional bricks-and-mortar banks.
How can you build up your emergency fund when you’re already on a budget? Consider saving your extra paychecks. Do you get paid every other week (26 pay periods vs. 24)? If yes, there are 2 months where you’ll receive 3 paychecks. Stash those 2 extra paychecks in your emergency fund. Do you get bonuses? Consider saving some or all your bonus in your emergency fund. Do you have a side hustle? Earmark that money for your emergency fund. Do you use Ebates to shop online? Put that big fat check in your emergency fund.
Once you save enough in your emergency fund, continue those good saving practices to build up your retirement funds – you can direct your extra paychecks or bonuses into your 401k and side-hustle money can go into a Roth IRA.
Don't let a shutdown shut you down. Are you prepared for the unexpected? You don't have to go it alone; I'm here to help.
Editors Note: This blog post is part of the January 2019 edition of Odyssey NexGen Newsletter. Curious about Odyssey's NexGen program? Email Anne.Simpson@odysseypfa.com to learn more.