Hundreds of thousands of federal workers are facing financial peril as a result of the government shutdown. Main stream media has reported that some of these workers are having to go to food banks to feed their families and they are unable to pay their bills.
Prior to the shutdown, these workers were considered to be in good shape because they had a recession proof job, earn a decent wage, and receive benefits such as health care as part of their compensation package. Then, President Trump dug his heels in to achieve one of his core campaign promises.
Like past shutdowns, these workers have been promised back pay once the President and Congress reach a compromise. When that will occur is anyone's guess. In the meantime, many government workers are sitting on a financial cliff or falling off the edge of it.
In this, there is a financial lesson for them and all of us. It is human nature to get comfortable with our way of life. The rampant consumerism that drives our economy encourages us to buy the latest and greatest trinket and to CHARGE IT!!! As our economy has continued to boom, so has consumer debt increased. In November, it was reported that credit card debt hit a record $3.95 trillion for the month of September.
As more and more people fall into the debt trap, they fail to assure they can pay their bills and put food on the table if they suffer a temporary or permanent job loss. That failure can have consequences that result in the loss of everything or put them into a debt from which they may never recover absent a bankruptcy filing.
When you cannot pay a bill on time, it may be reported as delinquent on your credit report. The result: instant credit score drop and a black mark that will remain on that report for seven years. For some, this transposes into a collection account that further drops the score and adds yet another black mark. As you fall behind on bills in the short term, the amounts pile up and it becomes harder to dig your way out of the debt trap.
If you are facing such a hardship and have some financial liquidity, pay the bills that are reported on your credit report. This will help you avoid higher interest rates in the future and protect your credit score. While this sounds logical, I recognize that there are some bills that carry an immediate need to the family. Of course, they come first. We at Credit Score Maestro seek to help you build and protect your credit rating.
The optimum way of doing so is to build an emergency reserve fund. That fund is your financial life preserver. A proper reserve considers your monthly outflow for non-discretionary bills and is large enough to pay those bills for six months. For most of us, we can find a job in that time or make other adjustments. We have seen time and time again where a family bread winner suffers an accident, tragically dies, or is unexpectedly laid off. Families who are unprepared for such an unexpected event begin a steady walk towards that proverbial financial cliff.
Creation of a reserve fund will cause some immediate sacrifices, which is why many people avoid creating one. They are comfortable in their current lifestyle and convince themselves that nothing will change. While there may be some initial pain, once you establish this fund, you will sleep much sounder and have less stress when times start to get tough. Oh, times will get tough one day because our economy is cyclical.
We must be prepared and have that safety blanket ready for use. How long can you go without an income before you start to lose everything you have built in these good times? Some of us are barely getting by now. We have the power to change that with budgeting and applying discipline in our financial lives.
The hundreds of thousands of federal workers who have now missed two paychecks wish they had or are glad they had in place an emergency reserve fund. If you are able, lend a hand to a struggling government worker in their time of need. Most importantly, learn from this historic government shutdown and take steps to guard yourself from landing in their predicament.
