Well, if it happened once it could happen again: another disruption in federal pay.
I think it's safe to say that all of us would rather avoid that experience, but it's best to be prepared in case we can't. With that in mind, here's a five-step strategy you can begin working today to help you be prepared, just in case.
1. Develop a Spending Plan
If your income has just been cut (or soon could be), get uber-focused on developing a budget. This number-crunching reality check will show you where your money goes and where to cut back. To get started, use the USAA Money Manager.™ It's a simple and easy way to set up a budget and track your spending, regardless of where your accounts are.
2. Reduce Expenses
If your income drops, your expenses should too. To free up cash, study your current cash outflows and find places to cut back on nonessentials now. Expenses like premium cable channels and frequent dining out are "wants," not "needs," and are a great place to start. You should also reexamine your approach to debt payments during this time. If you're paying extra and don't currently have an emergency fund, you might be better off temporarily redirecting those extra payments to savings instead. Once you get through this crisis, you can then aggressively attack the debt again. The USAA Debt Management Tool (login required) can help you decide the best way to do this to save time and money. Finally, be careful not to cut important expenses like insurance coverage. Being uninsured or underinsured could be devastating in the event of a loss.
3. Try to Keep Saving
This will be a tough one for some people. Even so, try to keep saving if you are able to because saving is often a momentum game and once the momentum is lost, it can be very difficult to get it restarted. You don’t want to turn a temporary pay disruption into long-term damage to your savings goals.
4. Hold Off on Large Purchases
Occasionally, families buy big-ticket items such as household appliances or cars. But if your finances are on shaky ground, put those purchases on hold.
5. Ensure Access to Available Credit
No, you don't want your current circumstances to bury you in debt, but make sure you have credit available just in case you run out of cash and don't have any other options. As an additional layer of financial security, establish overdraft protection on your checking account if you don't already have it. Also, research any related rates and fees associated with any borrowing you have to do. Again, you should avoid taking on extra debt if possible, but use it as your safety net if you have to.
If you're fortunate enough to be unaffected by Washington's woes, your belt-tightening efforts will still leave your finances in better shape.
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