There is also the possibility of a government shutdown if Congress can’t reach an agreement on next year’s budget. Federal workers should be worried their pay will be paused while the politicians fight over funding the government.
Life is full of lessons. Strikes, furloughs and layoffs may not be happening to you right now, but watching others try to make ends meet during these situations should be a wake-up call.
How long could you survive without a paycheck if a financial emergency strikes?
Am I trying to scare you?
Yes, I am, because good money management involves preparing for the worst.
Here are five moves you should make before and during a disruption in your income:
Always look for ways to slash your spending
You should regularly reexamine your budget for bloating.
When things are going well, it’s hard to spot overspending. An extra $20 or $30 here and there doesn’t get noticed. But closing off that money drain can become your savings grace if your paychecks stop.
Don’t wait until you’re in the middle of a crisis to start controlling your spending. Even if you stay employed, what have you lost by budgeting better? Nothing.
My husband retired at the end of June. We are fine, yet with the inflow of money now limited, every expense is being scrutinized. One of the first things we did was make a list of subscription services. I was able to halve the price of one monthly subscription from a company that wanted to keep our business.
Comb through your budget now and trim unnecessary spending. Then put the savings into your emergency fund. Even tiny amounts add up and can have a big impact if you lose your job or have to weather a layoff or strike.
Save enough to cover at least two missed paychecks
During the historic 35-day federal shutdown in 2019, about 800,000 government employees missed two paychecks. Although they were eventually paid, many had to do some scrambling to cover their expenses during the furlough.
Like so many others, I have long encouraged people to save three to six months’ worth of expenses for a rainy day. However, meeting that goal could amount to a few thousand dollars or more.
The natural response for many when a goal is too high is to do nothing. Why bother if you know something is near impossible?
Okay, so set the bar lower.
Aim to be able to survive at least a month without a paycheck. It will give you some time to find other work.
And rather than calculate all the money needed to fulfill your monthly obligations — credit card payments, utilities, cable, or online streaming services — focus on just necessities, such as food and housing expenses. When money is tight, you can let some things go for a little while so that you can keep a roof over your head and food on the table.
Communicate with your creditors
Your savings goal of amassing enough to cover just the bare necessities is a compromise if you are struggling to build an emergency fund.
Here’s the second half of this strategy if your paychecks stop: Don’t wait until you get behind before notifying your creditors.
Make preemptive contact to strike a deal if you think you might not be able to make a payment. Your creditor may not give you a break, but you’ll never know if you don’t call.
Contact every creditor and ask for a reprieve on your bill. Explain your situation — I’m on strike, I’ve been furloughed — and see if you can get a month or even two months of forbearance.
If you find you need more time, call back. Better to ask for help than stay silent and suffer as you try to manage bills with money you don’t have.
Delay your debt reduction plan
Until you’ve built up a cash cushion to at least cover necessities for one month, don’t pay more on your debt than required.
Yes, you’ve been told to make more than the minimum payment. But you need a sufficient cash cushion. Your aggressive push to get rid of your debt has to wait. You can’t afford to pay extra on your debt until you have that emergency fund established. Once you’ve accomplished that mission, then go back to paying the debt down.
View your credit card as a ‘frenemy’
If you can’t pay that credit card bill off by the next due date, you are living beyond your means. This is exactly when you should see credit as an enemy.
In times of financial trouble, consumers often turn to credit to get by. That’s when they see credit as a friend — a bridge to temporarily pay for what their income would normally cover.
Don’t carry a balance, so when you feel you have no choice but to use credit, you aren’t adding to an already ugly debt situation.
B.O.M. — The best of Michelle Singletary on personal finance
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