Preparing your personal finances for a government shutdown

What financial actions can I take if my paycheck doesn't arrive on time? That's a question many federal government employees and military members might ask themselves when there's the risk of a federal government shutdown.

As military members, a government shutdown can potentially have a big impact. It could mean you won't receive your paycheck on time — depending on the specifics of the shutdown and guidance issued by your agency.

If your paycheck doesn't arrive on time, how can you take care of yourself and your family? The good news is that many organizations are set up to help provide short-term loans to military members if federal government funding is disrupted. There are also some smart financial actions you can take to best use your financial resources to get you through until paychecks start arriving again. 

USAA response

USAA is prepared to support our members in the event of a missed paycheck due to a federal government shutdown. Through our special loan and payment assistance offers, we encourage anyone facing financial hardship due to a government shutdown to check out how we may be able to help. You can find out more about what is offered and if you're eligible here.

Emergency society response

Military aid societies and organizations like the American Red Cross often step in to support the military community during times of emergency. A government shutdown is no different. If needed, you can reach out to these organizations.

Air Force Aid Society Opens in a New Window‍ ‍ ^{See note 1}

Navy-Marine Corps Relief Society Opens in a New Window‍ ‍ ^{See note 1}

Army Emergency Relief Opens in a New Window‍ ‍ ^{See note 1}

Coast Guard Mutual Assistance Opens in a New Window‍ ‍ ^{See note 1}

American Red Cross Opens in a New Window‍ ‍ ^{See note 1}

Each one might serve a different need, from helping you with emergency travel funds to helping with daily essentials like food, shelter and clothing.

Budget and spending habits

Here are some steps to help you prepare your personal finances if a government shutdown impacting your agency appears imminent or has occurred.

1. Reduce expenses.

Take care of your absolute needs first — things like groceries, mortgage and utilities. Cut back or cut out nonessential expenses and delay any new major purchases.

2. Use accounts wisely.

Using your accounts in the proper order can help preserve your intended financial goals while helping to avoid potential penalties or taxes. You can withdraw funds from a savings account without penalty and usually quickly. Early withdrawal of funds before the date of maturity of a certificate of deposit (CD) will typically involve penalties or fees.

Tapping into IRA funds brings on different considerations. If you're younger than 59 ½, you might have to pay penalties on the money you withdraw. In either case, you need to consider the tax implications of the withdrawal as well as how this action affects your long-term goals like retirement. A loan from a retirement plan, if allowed, may be better than a withdrawal as you can put the money back into the account. For more information on retirement plan loans, check out this IRS website Opens in a New Window.‍ ‍ ^{See note 1}

But it's better to pay some taxes and penalties than go hungry if retirement accounts are the only source of funds remaining. The bottom line is to use money in savings accounts before accounts like IRAs or 401(k)s to avoid potential penalties and taxes. 

3. Contact your financial companies.

If you're without a paycheck and can't pay your bills, it's important to let those companies know of your financial difficulty.

1. Contact your credit card companies to see if they have any deferred payment options.
2. Contact your mortgage company to discuss payment extension options.
3. Contact your insurance company to see if they have any special payment arrangements that can help you maintain your coverage (health, life or property) so you don't lose those protections while you have reduced income. There might be options available if you ask.

4.Have an emergency fund.

An emergency fund is a perfect fit for an event such as a government shutdown. Most of us would consider a missed paycheck or two an emergency. If the paycheck doesn't come in, you can draw from your emergency fund and pay it back when the government is funded and you receive back pay.

If you don't have an emergency fund, begin saving for one when your paychecks return. Start by saving $1,000. Place this money in a savings or similar account. Then, continue saving toward a fully funded emergency fund worth three to six months of essential living expenses. Imagine how you'll feel having six months of living expenses saved up to help cover unexpected expenses.

But these financial actions apply anytime you have a reduction in income. For example, a military spouse might lose their job because of a military move. This might result in the need to reduce expenses and use part of the emergency fund to cover bills until they get a new job.

Taking appropriate steps to spend less than you earn, using accounts wisely, and seeking help where available can help prevent further damage to your financial security.