When the U.S. government shuts down, federal agencies lose access to the funding they need to perform different functions. This affects people across the country. National parks and museums close. Many folks with public sector jobs can’t get paid and the economy takes a hit. While federal furloughs rarely happen, it doesn’t hurt to be prepared. Here’s what to do the next time you hear about a possible shutdown.
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1. Pad Your Emergency Fund
If the government shuts down, you might need to have access to extra money. For example, if your tax refund is delayed, you may need to use your savings to pay for bills that you may have wanted your refund to cover. And if you work for the government, you may need to use your emergency fund to pay for everyday expenses.
The general rule of thumb is to have at least three to six months worth of emergency savings. But depending on your lifestyle and your financial situation, you may need to save more than that.
2. Create a Financial Emergency Plan
In addition to building an emergency fund, it’s important to have a financial plan in place for dealing with a government shutdown. For example, you’ll need to prioritize your bills so that you know what to pay first. You’ll also need to consider whether there are any non-essential expenses that you can cut back on so that you’ll have more money at your disposal.
Related Article: Budgeting for a Rainy Day – How to Grow an Emergency Fund
3. Make Sure You Have Access to Credit
In case you run out of cash or you need to make a large purchase during a government shutdown, it doesn’t hurt to have some available credit. Some banks offer access to lines of credit during a shutdown. Finding out whether your bank offers this service could be a good idea.
If your bank can’t extend credit while the government’s closed for business, you may need to work on paying down some of your debt. Paying off credit card debt and the balance tied to your home equity line of credit (if you have one) can increase the amount of available credit you have.
4. Contact Your Bank
Besides asking whether your bank gives its customers lines of credit, it’s important to find out if your bank or credit union provides any special services during a government shutdown. Will you be allowed to take money from your certificate of deposit without paying an early withdrawal fee? Is your bank willing to lower interest rates or adjust any policies? Knowing the answers to the questions can help you prepare for the worst-case scenario.
5. Avoid Making Rash Investment Decisions
Making investment decisions based on your emotions is never a good idea. Even if you’re afraid of what might happen to the economy following a government shutdown, it’s best to stay calm and avoid selling off your assets. Riding out the market could be an effective approach, especially if you already have an investment strategy in place.
In the meantime, it’s a good idea to think about when you’re going to rebalance your investment portfolio. Experts say keeping your portfolio as close as possible to your original asset allocation is one way to reduce your investment risk and protect yourself from market volatility.
Related Article: 4 Things Wealthy Investors Don’t Do When the Market Tanks
Government shutdowns affect more than just federal employees. They can delay homebuyers waiting to find out whether they qualify for mortgages. They can also prevent veterans and low-income individuals from getting the government benefits they need. That’s why it’s important to plan ahead so that you know how to respond when the government fails to approve a budget plan and temporarily loses the funding it needs to run properly.
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