Govt. Shutdown Financial Impact

Hundreds of thousands of workers have been furloughed. What does this mean? Although some essential work, such as mail delivery, social security, Medicaid, Medicare and Veteran Affairs are not affected; other basic government functions, like maintaining national parks or inspecting the national food supply, have been halted or dramatically reduced. Other departments affected include the TSA, Homeland Security and federal law enforcement.

Last week over 800,000 federal employees did not receive paychecks. Tens of thousands of law enforcement personnel are among those working without pay. This includes the FBI, DEA, Bureau of Prisons, Customs and Border Protection, Coast Guard and Secret Service. On Friday, former President George Bush posted a photo to his Instagram delivering pizzas to Secret Service agents, as he called for an end to the shutdown.

Previous U.S. Government Shutdown

This isn’t the first time we’ve had a government shutdown. These moments have happened more frequently in recent years. During the Reagan administration , there were a total of eight shutdowns lasting four days or less. Again in 1990, during the Bush administration caused a weekend shutdown. During the Clinton administration, there were two longer government shutdowns in 1995 and 1996 lasting five days and three weeks. During the Obama administration, a government shutdown occurred in October 2013 for 16 days over Democrats and Republicans not coming to an agreement for the Patient Protection and Affordable Care Act, also known as Obamacare.

U.S Government Shutdown Impact

It’s not just the 800,000 people who aren't getting paid. Small businesses such as daycare's, auto service, restaurants and local community stores that service the government employees are also going without massive amounts of revenue for the last month. The "Government Shutdown" headline has dominated the news for weeks, and perspective is the utmost importance. It's a horrible situation for all Americans, including those it indirectly affects. The 800,000 employees who are not receiving pay represent less than 1% of the overall US workforce. However, economists have stressed the longer the shutdown continues, the greater effect it will have on small and large businesses and eventually the economy as a whole. Think of it as trickle-down economics in reverse.

U.S Government Employees' Loss of Pay

Unfortunately, nearly 80% of all Americans live paycheck to paycheck. Four in ten adults, if faced with an unexpected expense of $400, would either not be able to cover it or would have to sell something or borrow money from family or using high-interest credit cards, or payday loans. Imagine the average American married couple who both are employed by the government. Not receiving two paychecks means a lot of bills and expenses go unpaid delayed, such as: rent or mortgage, property taxes, childcare, auto payments, insurance, utility bills, and/or loan payments.

Meanwhile, furloughed government employees have set up more than 1,500 GoFundMe pages to request financial help with rent, groceries, diapers and other necessities. GoFundMe's CEO Rob Solomon announced a campaign to assist federal workers and received a $10,000 donation from Deepak Chopra, which was matched by GoFundMe. Multiple restaurants and other small businesses have offered free meals and other services. Credit card companies and lending institutions have offered deferred interest and payments to further assist those directly affected.

Just because you don't work for an affected area of the government, does not make you immune to a sudden loss of income. Everyday Americans are missing pay due to sickness, injury, layoffs and other family emergencies. Now is a great time to review your financial emergency preparedness; starting with creating a cash reserve.

How Cash Reserve Helps

The general rule of thumb for a cash reserve is to save three months of your expenses in case of emergency. Start by making a list of your monthly essential expenses. Food, shelter, childcare, transportation, insurance, utilities, medical, and loan payments. Next, take the total of these expenses and multiply by three. The result is your recommended minimum cash reserve. If it seems like a big number, start with a one month cash reserve goal then build your reserve over time.

Each time you receive a paycheck contribute a portion to your cash reserve account. Typically a savings account at your local bank is a great place to start a cash reserve. I encourage clients to save no less than 10% of pay into a cash reserve until the desired reserve goal is met. Consider making the contribution automatic by talking to your employer about splitting your direct deposit into multiple accounts.

A cash reserve won't prevent emergencies, but it can help how you react to emergencies and protect the integrity of other financial accounts.