How to Manage Your Money While You're on Furlough
Introduction
Government shutdowns are becoming a regular part of life in America. The latest one shows no signs of ending soon. As a result, thousands of workers are going on furlough. They’ll be out of work with no pay until the shutdown ends. Only then will salaried workers get back pay. In the meantime, how can furloughed workers manage their money?
Image Description: A person managing their finances during a furlough.
Deal with Bills
The government may be closed but bills are still due. However, you may be able to negotiate with your landlord, mortgage company, or other creditors. Workers can write to their creditors asking for delayed payment plans. The federal Office of Personnel Management provides sample letters to send creditors on its furlough guidance website. Before writing, first try speaking with creditors in person about your situation, the OPM suggests.
Image Description: A person negotiating bill payments with a creditor.
Cut Back on Expenses
You may want to just cut back on expenses you can't negotiate. Things like your cable bill and dining out can be among the first cuts to make, said Monica Dwyer, vice president and wealth advisor for Harvest Financial Advisors. To lower home and auto insurance premiums, you can ask for a higher deductible. However, if you experience a loss, you'll have to pay more.
Image Description: A person reviewing their expenses and cutting unnecessary costs.
Find Other Sources of Money
Furloughed workers may want to start gigs like driving for a ride-hailing company, dogsitting, or babysitting, Dwyer said. You can also turn your old stuff into cash. Take the time off to sort through your possessions like old clothes or appliances and sell them off. You can sell items on social networks like Facebook and Nextdoor or marketplaces like Poshmark and Craigslist.
Image Description: A person selling items online to generate additional income.
Access Retirement Funds
In a pinch, you can also draw on your retirement funds. You can withdraw contributions from a Roth individual retirement account tax-free and penalty-free. You can also borrow money from traditional individual retirement accounts, but you'll face a penalty if you don't return the money within 60 days. This should be an emergency option, like if you need the money to save your house from foreclosure, Dwyer said. Be sure to talk with a financial professional to discuss the tax implications of withdrawing money from an IRA.
Image Description: A person discussing retirement fund options with a financial advisor.
Consider Furlough Loans and Unemployment Benefits
Some credit unions that cater to federal workers offer furlough loans. For example, FedChoice Federal Credit Union is considering loans for members at annual percentage rates as low as 2.5%. Workers may also be able to file for unemployment benefits. State laws vary regarding eligibility. In general, you can apply as soon as the first day you're furloughed. Check your state labor department for local rules on benefits.
Image Description: A person applying for a furlough loan or unemployment benefits.
What to Avoid
If possible, avoid borrowing money against the value of your home, said Dwyer. Such loans can be risky and costly in terms of interest and fees. Also, avoid products from potentially predatory lenders like payday loans. Read all the fine print when borrowing money, Dwyer said. "There can be really pertinent information in the fine print that we're not made aware of when we're taking out a loan," Dwyer said.
Image Description: A warning sign about the dangers of predatory lending practices.
Preparing for the Next Shutdown
The optimal way to prepare for a shutdown is to save three to six months of pay, Dwyer said. That can be difficult, but with shutdowns becoming a regular occurrence, it should be a priority. An emergency savings account can help workers outside of the federal government too. Any worker is at risk of a furlough or worse if the economy takes a turn for the worse. Creating an emergency fund can be easier than you think.
Image Description: A person building an emergency savings fund.
Conclusion
Managing your money during a furlough requires careful planning and resourcefulness. By negotiating bills, cutting expenses, finding other sources of income, and considering options like furlough loans and unemployment benefits, you can navigate financial challenges more effectively. Preparing for future shutdowns by building an emergency fund is also crucial.
Image Description: A person confidently managing their finances during a furlough.
