We haven’t seen it in the news much, but the U.S. government has approached it’s debt limit.
And the U.S. government needs to approve a budget or else.
The U.S. Treasury has warned that they are using “extraordinary measures” to avoid reaching the limit and can do so for maybe another 3 or 4 weeks. This obviously causes me to think about past furloughs and government shutdowns.
Furloughs and shutdowns are when Federal employees and military service members find their income under threat – that Congress and the President may not act in time to ensure pay continues without a delay.
I’ve written about two key ways to be prepared and mitigate the impact of interrupted or reduced income in the past.
- Keep your emergency fund fully funded at 3 to 6 months of expenses goes a long way to making an income interruption event much less stressful and much less of a problem.
- Minimizing debt has a similar impact AND gives you flexibility. You have fewer obligations that your money has to be directed towards.
Here are 3 more strategies that can be helpful – two of them only if you have enough income and flexibility to do them when times are good.
1) Pay ahead on loans. Many mortgage and auto loans allow you to pay ahead. They’ll let you apply extra payments to future monthly payments. I discovered this by accident once when I was trying to pay extra principal on a mortgage and they applied it to the next month’s mortgage payment. I found some peace of mind by staying a month ahead. If money got tight, I could opt not to pay one month, because it was already paid. If you try this strategy, make sure that the extra payment does go to later payments and not towards principal (although paying principal early has the benefit of paying off the loan sooner.)
2) Keep your pantry full. Make sure you have, at least, a few weeks of non-perishable food stocked up or have enough that you can significantly reduce how much you regularly spend on groceries, during the period of interrupted income. Food costs are a significant portion of a family’s spending and yet American families let a significant amount of food go to waste without being used. Be careful to use the food before it expires.
3) Temporarily reduce funding to your retirement and savings accounts during the pay crisis. Note: This is not the preferred approach, but if it is needed, then it should be done. If there is still a source of employment income from which 401K payments or other retirement account payments are made, then these payments can be reduced temporarily to provide more income for current expenses. Once the income interruption period is over, do your best to “make up for lost time.” In the case of your income being delayed, when it restarts, then make extra contributions to “catch up.”
Finally, be prepared. Having your income interrupted or reduced is no picnic, but being prepared for it makes it easier to get through. We know interrupted income happens to people who do everything right. We know it happens when it shouldn’t, so make the effort to be prepared.
If you discover it is difficult to prepare, then it’s the right time to seek some professional assistance from an Accredited Financial Counselor (AFC).