Let's say that you're one of the over half-million federal employees who has “gotten the letter” indicating that there is an administrative furlough in your future.
Let's also say that you've gotten yourself in the right mindset about the temporary loss of income, and have run the numbers to see how much of each paycheck you'll be missing, starting when, and for how long.
Let's take, for example, a hypothetical Department of Defense employee — we'll call him Dr. Dray — who is set to be furloughed for up to 11 days starting the second week in July, and going through the end of September. Let's assume that this employee has run through the civilian employee furlough calculator, and stands to be missing $325 per week from their take-home pay.
$325 per week, for 11 weeks, amounts to $3,575 through the end of September. This is about a $1,200/month shortfall in take-home pay for July, August, and September.
That's a reasonable estimate of the shortfall both in amount, and in time frame. The big question is this: How much has to change in order to adjust to this new reality?
Check your resources
If you're living from one paycheck to the next, then there might need to be a lot of adjustment made. But if you're not — if you have a sizable emergency fund socked away as a cushion, or if you know that your expenses are much less than your income — then there may be little or no adjustment in lifestyle necessary, unless you want to save even more.
In essence, you may have enough no-cost or low-cost financial resources available to you that the furlough, in effect, doesn't matter.
Consider the following:
- Do you have enough saved up? Let's say that Dr. Dray's spending about matches his income now, but he has $4,000 in a savings account that he's built up over the past year. He can draw down this savings account for the full amount of the shortfall, and not change his spending at all.
- Will you have enough supplementary income? Another scenario is that Dr. Dray has gotten the OK to take on side work during his furlough days (and the weekends) to pull in an extra $700/month. Now the shortfall has been reduced to $500/month rather than $1,200/month. This can be made up by cutting expenses or by dipping into savings.
- Do you have financial vehicles available? Dr. Dray hasn't borrowed against his Thrift Savings Plan account, and is able to borrow nearly $10,000 through a personal loan. He runs the numbers in the TSP loan calculator, and finds that a $6,000 loan could be paid back in only a year with a biweekly paycheck deduction of $233, and only cost $108 over the whole loan (a $50 origination fee plus $58 in interest — and even that goes right back into his TSP account!) Obviously this isn't as good as having money in the back, because the loan isn't free, but it is very low-cost money.
- Are there loan deferment options available to you? Dr. Dray's credit union is fully aware of the sequestration and furloughs, and in order to alleviate the financial hardship during the furlough months, they offer him the option of paying interest only on his $500/month car loan and $700/month mortgage for six months. This costs him more in the long run, but it nearly eliminates the cash flow shortage during the furlough.
The long and short of it is this: You may not have to scrimp if you have the right resources at the right time. But if the resources available are too thin, again, don't panic. There's still time to adjust to the shortfall.
