As a financial advisor, I see a situation like this and I want to go a step further. In thirty-five days many things can happen and for approximately 800,000 Americans, thirty-five days probably felt more like an eternity, since they worked without pay or were suspended until further notice due to the closure of the government. Unfortunately for the workers who have been the most affected by this, nobody saw it coming. For a long time, working for the government was seen as “the desired job” to have. The benefits, the pay and the security were all incomparable. However, this recent problem has revealed many difficult truths and valuable lessons for all since something unexpected can happen to any of us. I wonder why so many working Americans have no savings and how we can help them. More importantly, I wonder how they can position themselves better for their next setback. Many of these newly unemployed are people who work hard and have a paid job, but yet the loss of a paycheck prevents them from paying their bills. Of course, some of these situations may involve the financial challenge of having to pay for a single event, such as a medical emergency. But in other cases, the reality is that people simply do not save enough. Ultimately, what we are learning from this closure is that individuals are responsible for their own financial freedom. If that’s something you’d like to achieve, here are some steps to get to that goal.
Lesson # 1: An emergency fund is a necessity, not an option.
According to Bankrate, about 65% of Americans have little or no accumulated savings, and according to CNBC, only 37% of retirees have more than $ 100,000 saved for retirement. In addition, 60% do not even know how much you need to save for retirement. If you are new to the world of savings, saving money for an emergency seems unnecessary and, sometimes, too difficult. There are regular monthly bills and then the unexpected repair of cars, medical bills or family emergencies that compete for part of the budget. Think of how much more difficult it is to suddenly lose your income and, literally, not having anything to turn to.
Consider opening a savings fund so that the funds are not so readily available for capricious expenses. Then, set up automatic transfers every month, every week or whatever suits you best. Do not get caught up in the amount you can save. Even if it’s only five dollars, start there! The goal is to get the momentum.
The recommended amount of savings is three to six months of living expenses. If that seems too intimidating, make your first goal $ 1,000 in savings. One day you will see that account and you will be glad you started.
Lesson # 2: Life insurance that does not depend on your employer.
The closure of the government has affected hundreds of thousands of government employees. Many of these employees have life insurance policies with the Federal Employees Group Life Insurance (FEGLI). Although the benefits of FEGLI do not seem to be affected by the closure yet, the money to cover these benefits could disappear quickly if the closure continues. Many sources report that the closure could cost around $200 million each day.
Although FEGLI may have seemed like a good offer when it was first offered to you, the unfortunate truth is that your benefits may no longer be guaranteed. Even if this chaos does not continue to persist, there is no real assurance that the government will not become unstable once again in the near future. If you are a government worker and already had life insurance with a private insurance company, you would not have to worry about the security of your money and the benefits of your life insurance. You can also find a plan that offers more affordable premiums than FEGLI.
The closure of the government affects American benefits, more specifically, many families are suffering because they have not been able to claim death benefits during the government shutdown.
My advice is do not let anyone determine your future. You are the one who needs protects your family, since it’s not your employer’s responsibility to put your family first.
Lesson # 3: Consider the big picture.
This approach is good but stepping back from time to time to see how your financial decisions are affecting your future in general is even better. Use credit cards responsibly. Choose not to use credit cards or be sure to charge only an amount that you can pay in full each month. You may have agreed to make minimal payments by credit card without realizing that hundreds or even thousands of interest is accumulating over time. Remember, any monthly balance is evaluated at a very high interest rate.
Reassess all your current financial habits and objectives to see if they will bring you closer to where you want to be in the long term.
Lesson # 4: Teamwork makes the dream work.
If the recent closure of the government has not taught us anything, it should show us how important cooperation is. When even one person just one person on the same team is inflexible, it can create a serious obstacle and have many ramifications.
This will require some honesty, self-reflection and commitment. Saving is easier for some, while others like to spend more. Having an early conversation about each person’s money focus will help consolidate what financial focus the partner will assume. In addition, agreeing with what is considered an important purchase can avoid future arguments and play the game of guilt.
Each person’s point of view is different, so there is no place for assumptions. In order to keep the same final goal in mind you must flesh out all financial objectives together. You owe it to yourself, your partner and/or your family to live the life you have imagined.
With the closure of the government in the news, the focus is on those who, unfortunately, did not receive a paycheck. But their situation is not exclusive to them. If you are one of the millions of Americans who are not prepared for a financial setback, consider you take the first step of setting a goal to take control of your financial life. While it may seem stressful to focus on the necessary steps, eventually, as you become familiar with the concepts of financial planning and save a few dollars, you’ll end up of having immense peace of mind.