The discussion about creating an emergency fund is ongoing and very important…yet all too often, preparation for a financial disaster is dismissed as a non-essential action; it’s something to consider for later on when we are ready to set aside the cash to spare. And for those who have stable employment with great benefits, it almost seems ridiculous to worry about all the “what ifs.” That was until the recent government shutdown taught us an important lesson about financial fragility and how easy it is for any of us to fall victim at a moment’s notice.
It is critical to understand that a shutdown that results in employees being separated from their paychecks is not about job performance. It is not about reprimanding the employee who always shows up late for work, or who surfs the web on the job. An employee could be the best worker in the office, on time every day, never calling out sick…maybe even next in line for a big promotion, then suddenly, he or she, finds themselves holding the new title of the “unemployed.” For 35 days, over 800,000 American government workers were in that exact position and had their paychecks frozen. Some were even required to continue working without pay. One minute they were happily enjoying what was assumed to be financial stability, and the next, they were panicking about how to come up with money to pay for basic living expenses such as rent, mortgages, car payments and even food. Average, tax-paying citizens were on the brink of homelessness and dealing with the possibility of losing everything they had worked so hard for; these people had little warning, and most were not prepared for the long haul - this is something that should frighten everyone, because it can happen to any of us, for any reason.
Being financially fragile means that a person is unable to access and spend $2,000 within one month of being faced with an emergency; and a recent study has shown that one in three people are unable to do so. Humans are not immune from emergencies, regardless of how much money one makes, or how stable a job appears, so it stands to reason that being prepared should be on the top list of priorities. However, it is easy to become complacent when a steady paycheck feels like it will last forever. And the idea of setting up an emergency fund gets shifted over to something that is taken care of “next time.” But the recent government shutdown, and the one that might be following if certain political demands are not met, proves to us all that now is the time to prepare for the worst.
Another alarming element about a government shutdown is that the catastrophic effects eventually trickle down into non-government sectors. If transportation security agents were to go on strike for lack of pay, employees of civilian corporations may be prevented from conducting business because flights could become grounded; this could also negatively impact airline workers and their families. Contractors might lose wages and experience project delays. Small businesses may be impacted harshly, as was discussed with a shutdown that occurred in 2013. Low income people, whose very survival depends on benefits such as food and housing assistance, could eventually have nowhere to turn. Highly anticipated tax refunds could be put on hold until further notice. Our economy could crash and its effects would be felt for years to come; these examples are just a few of the many possibilities that indicate a shutdown would not only hurt federal employees, but may harm us all as a society.
The best way to prepare for a financial disaster, whether it is caused by a government shutdown, corporate lay off, medical emergency, or something else…is to start working on a separate fund that is tucked away just in case. Cutting out unnecessary spending is a great way to free up extra money to stash away in an emergency fund. And learning to allocate all sources of income appropriately is a great way to experience the overall benefits of financial wellness.
Please watch our video to see why multiple sources of income may be just what is needed for making ends meet while having enough left over for savings: