President Trump has decided to call a temporary, three-week cease-fire in his wall battle with Congress, which will certainly come as some relief to the hundreds of thousands of Americans — federal workers, contractors, and others — who weren’t paid during the 35 days of the government shutdown. And beyond those directly impacted, millions more took hits to their income from the knock-on effects: Government workers without paychecks reined their spending back to bare minimums, and billions of dollars in purchases that normally would have happened didn’t. All of which is a darn good reminder that no matter who you work for, you need to have an emergency fund.
In this segment from the Motley Fool Answers podcast — recorded before we had any idea how much longer the shutdown would last — hosts Alison Southwick and Robert Brokamp talk about what steps you should take when trouble strikes, and you find yourself forced to start drawing down on that cash cushion.
A full transcript follows the video.
This video was recorded on Jan. 22, 2019.
Robert Brokamp: Let’s say you’re now in the situation where you need the emergency fund. For some reason you’ve had an income disruption or just a big expense. How can you stretch it out? What should you do to your finances to put yourself on emergency footing to make sure it lasts as long as possible?
As I pointed out, the emergency fund is based on must-pay expenses, so you want to look at the discretionary expenses. You want to do as much as possible to not spend money. In the last episode we talked about how you could suspend your cable service. You don’t have to cancel it — you could suspend it. You look at the things that you normally spend money on and you try to cut back.
But it’s not just your spending. You might be on some sort of automatic investment plan. You might be sending $400 a month to the 529 plan. You might be spending $200 or $400 to an IRA. You probably should stop that for now.
You want to be in contact with the people to whom you owe bills, and you start with the people who have the biggest influence over your credit score, and that’s usually banks. So call the people who are providing your mortgage, your car loan, your school loan. Let them know the situation. More and more companies, every day now, at least in terms of the shutdown, are announcing ways that they’re going to accommodate these folks, but you want to know what that is now. They’re either going to extend deadlines. Maybe extend grace periods. Waive certain fees.
Alison Southwick: Our neighbor is furloughed. She said that the most her credit card company will do is waive the late fees. That’s still something.
Brokamp: That’s still something, but you want to start there, because those are the companies that if you don’t pay those bills it’s going to affect your credit score. There’s a bank out in Oklahoma — First Oklahoma Bank — that has more than 6,000 federal employees as customers, and they are going to cover their bills until they start getting paid.
First of all, that’s just a great story. Second of all, it shows that when a lot of people are thinking of this federal shutdown they think of Washington, D.C., but there are federal employees all over the country.
More and more companies are also announcing some form of accommodation. Verizon, AT&T, T-Mobile. More restaurants are coming out, especially in the D.C. area, saying they’re giving discounts.
Southwick: Yes, Jose Andres is feeding people for free.
Brokamp: So you want to be aware of what’s available to you. The other thing you need to do is look for money you’re due. For example, obviously someone owes you money. It’s time to collect.
But the other thing would be flexible spending, for example. Now this is the interesting thing about medical flexible spending. Let’s say you signed up to set aside $2,700. You don’t have to wait until all that has been taken out of your paycheck to get that money. You could submit a legitimate reimbursement today and get that full $2,700 today even before you’ve put all that money away from your paycheck.
Southwick: Is it true with dependent care, too?
Brokamp: It is not true.
Southwick: OK, I was going to say because that didn’t happen with me. It’s different with dependent care.
Brokamp: It’s a good time to get your flexible spending. The other way you may be due money is a tax refund. The IRS has said that they’re going to start accepting returns on Jan. 28. They’ve said the shutdown will not affect their ability to process tax returns and give refunds. And on average, according to the IRS, you get a refund in 21 days.
So if you think you’re going to get a tax refund, now is a good time to start getting your taxes ready. Of course, there’s a state refund, too. Now there are services that will speed up your refund. They’re called “refund anticipation loans.” Generally not a great idea — obviously there are going to be fees attached to that — but if you need the money and you can’t wait 21 days to get your refund, that is an option.
You should access other resources available to you like employee assistance programs. We at the Fool have one. It’s basically a program by which you call them and they can point you to helpful resources. Many employers, as well as unions and associations, have assistance funds. We at the Fool have Fool in Need. If someone’s in any financial trouble, they can apply and get some money. Federal employees actually have the Federal Employee Education and Assistance Fund, which you can find at FEEA.org.
But contact any sort of these types of organizations to which you have an association or you belong to and they might have some sort of way of helping you out. And also other organizations like United Way and the Red Cross are always offering resources and help to people, but they are starting to do more specifically for federal employees.