At the beginning of this month, sequestration went into effect. This means sweeping cuts of $85 billion from this fiscal year's budget. To shore up this shortfall, many agencies are furloughing employees during this time, which effectively is a partial layoff.
I live in an area with a lot of federal government employees, many of whom are my friends, and the furlough will affect them if it's carried out. The effective pay cut is predicted to be about 20% through the end of September if the furlough runs its course.
The good news is that there must be at least thirty days' notice given to employees prior to a planned federal employee furlough. So, it does come with some warning.
In anticipation of this, one of my friends is having his family do a “furlough practice month” in March. Here's what they're doing:
- My friend plugged his paycheck into a calculator that estimated his take-home pay during the furlough.
- And that's what their budget is going to be for this month, before the furlough is set to kick in during April. The excess goes into savings until the actual cuts occur.
This is a wise thing to do. They're heeding the warning and taking action to prepare. It's wise for several reasons:
- The decrease in pay won't be a shock. They've been living on the tighter budget for a bit, by choice. They have a couple of shots to find the least painful places to cut.
- They have time to adjust if they miss the target a bit. Let's say the month's pay was going to go down by $800, but they don't quite make it and end up with net spending only $500 down for the month. That's fine! They then know to cut an extra $300.
- They're building up a buffer. What they don't spend with their tighter budget this month is a buffer: an emergency fund. Extra buffer is a Very Good Thing if times are tougher.
- They're setting themselves up for frugal living after the furlough. If the furlough runs its course, it will go on for five months. That's enough time to get used to living on 20% less. Come October, when pay (supposedly) goes back to normal, it will be like getting a 25% raise if they continue with their furlough-times spending habits. Being able to save or invest 25% is a great thing to be able to do!
Whether the federal employee furlough arrives or not is out of the employees' control. How they handle it is in their control. So planning to live on less before it happens, and having productive furlough days, will be key in arriving safely — and perhaps in better financial shape — on the other end.
We did this exact thing a few years ago prior to my life leaving her job in anticipation of her becoming a stay-at-home mom. We slowly took all of her paycheck away from our monthly budgeting. This allowed for two things. First, when she did leave, we were already ‘business as usual’ in terms of how our finances were running. It wasn’t a shock at all. Second, during the time that she did work and we’d already pulled her income out of the budget, we applied 100% of her income toward savings and paying down debt. This allowed us to knock down her student loan debt quite a bit, and paying down debt is never a bad thing.
If we believe the rhetoric, federal employees are overpaid. A 20% cut may bring them in line with the rest of the country. As a teacher, I know it is wrong, but there seems to so much discussed about what other people are earning and never the real problem. The real problem is partisan politics not the spending because all the spending is partisan. Republicans believe in spending on defense and democrats believe in spending on entitlements.
I was a federal employee at one point in my career and try to keep up with the pay grades and scale. I wouldn’t say they are overpaid. The good news is that a furlough is better than a layoff and that if history repeats itself, they will receive the money they lost retroactively at some point. Which would be a nice bump for your friend which could be used to pay off, debt, invest or add back to the buffer.
I created a furlough calculator for everyone I work with. It quickly made its way around the globe and many civil service employees are using it to project the near future. It is a simple excel spreadsheet that people can plug their current information in from their LES and it’ll automatically compute their furlough amounts. The calculator is available at: https://www.dropbox.com/s/2rumxfme3tdh9oy/Furlough_Pay_Calc_with_COLA_and_hour_adjustments.xlsx?m