A Military Member's Guide to Surviving a Shutdown

Although it appears as if the US Congress will come to some sort of a stop-gap agreement for continued funding for the federal government, at least through next week, there remains the over-arching threat of a government shutdown in the coming weeks and months.

In the event of a government shutdown, federal government activity will grind to a halt, causing furloughs of non-essential personnel, as well as the shutdown of federally funded health and human services programs and many other services absolutely essential to the day to day governance, safety, and security of the United States.

Check out this great post from Cash Money Life: What Happens if the Government Shuts Down? for more information on what services and agencies will be affected by the government shutdown.

How the Shutdown Will Affect the Military: 

As an active duty military officer, the first question that springs to mind in any reference to a government shutdown is: how will this effect members of the military?

The wars in Afghanistan, Iraq and Libya will not end because government funding has dried up. The Air Force will still protect our skies. The Navy will still proudly sail the seven seas. The Army and Marine Corps will still patrol the streets of Baghdad and the mountains of Afghanistan. The Coast Guard will still defend our shores and respond to mariners in distress. Simply put, the military will continue to serve as it has for centuries.

Ryan at the Military Wallet recently published an excellent post describing exactly what military members can expect in the event of a government shutdown. Visit: Will Military Members Get Paid If the Government Shuts Down?, for more information.

Fact is, although the military will continue to serve at home and abroad. Military members will not be paid until the government shutdown ends. Troops will continue to accrue pay and benefits, which will be paid once congress authorizes a budget or continuing resolution, but in the mean time troops will be left to fend for themselves.

A Step by Step Guide to Getting Through the Government Shutdown:

Its a scary feeling to not know when your next paycheck will be coming. As the government shutdown becomes more and more likely and military members begin to make plans for the lack of a paycheck for an unknown amount of time, it is important that military members develop a plan for getting through the crisis.

compounding returns has come up with a step by step guide to getting through the short term lack of cash associated with the government shutdown. Read on to learn the best way to keep your financial house in order during these lean times.

Step 1: Review your budget. During times like these, having a working budget is essential to making it through the temporary loss of income. Review your budget line by line. Consider Mint.com- simple budgeting and planning, for more information on starting a budget.

Even if you are already living a no frills lifestyle, there are probably some ways you can cut back. If you have been shopping at the grocery store, consider the farmer's market instead. If you have been driving to work, try carpooling or public transportation. There's always something more you can do. Even small savings will help keep money in your bank account when the checks stop coming.

Step 2: Temporarily stop investing. If you have money taken out of your account to fund a Roth IRA, 529 Plan or Itemized Savings Account this is the time to suspend those contributions.

You need to shift your mindset from accrual mode to survival mode. Slashing expenses and stretching your dollar are the two most important things to do when you don't know when or how much you will be paid.

Step 3: Tap your emergency fund. I hope for your sake that you have an emergency fund built up for this type of contingency. If you hold this emergency fund in an online bank account like ING Direct Earn high interest with the Orange Savings Account - No fees, no minimums & no need to change banks! FDIC Insured now is the time to tap it.

Our recommendation is to schedule automatic transfers of money in the same amount as your paycheck. Schedule these to arrive on the day you would normally be paid. This will ensure that you do not miss a bill or payment when they come due.

Step 4: Withdraw from your taxable investment accounts. If you do not have an emergency fund, or have already tapped your emergency fund dry your next stop should be taxable investment accounts such as stocks, bonds, and mutual funds. Avoid withdrawing any money from tax sheltered accounts like 401(k) and Roth IRA accounts as you will incur a significant penalty.

Step 5: Seek help from your comrades in arms. Although military work life programs will likely be unavailable during the government shutdown, your military friends are an excellent resource for surviving any downturn. Consider pot luck dinners, car pooling, helping with yard sales and other ways you can support one another during these tough times.

Step 6: Make some tough decisions. The fact is, getting through the government shutdown may come down to making some really tough decisions, especially if it stretches on indefinitely or your family has an underfunded emergency fund.

The best rule of thumb when it comes to tough decisions is survivability. Although nobody wants to miss any payments, it is essential to set your priorities. If you are unable to pay all of your bills, focus on the basics. Food, water and shelter. If an expense is unrelated to these three essentials, it can wait.

Step 7: Call your creditors. If you have been called upon to make extremely difficult decisions like forgoing a payment, bill or other expense it is imperative that you maintain a close conversation with your creditors.

Although it is difficult to say what type of response you will get from each of these organizations or individuals, forgoing a payment without explaining your reasons or circumstances is a big mistake.

Hopefully, in this type of situation you will be able to defer a payment without penalty. If you work with a bank like USAA, Navy Federal Credit Union or another military financial service provider, chances are very good that they will work with you on any missed missed payment during a government shutdown as many of their customers are experiencing the same problem.

Step 8: Use credit cards temporarily and judiciously. Although at compounding returns we seek to primarily pay down debt, and save and invest for the future. Sometimes, for survival's sake, you need to pay with credit.

In this case, it is the lesser of two evils. This is especially true since military members will be entitled to back pay. Just make sure that you pay the cards off as soon as possible to avoid paying fees and interest. The choice between credit card debt and putting food on the table should be an easy one. Refer to step 6.

Come Payday:

Step 9: Repay your creditors. This situation will not last forever. When the checks finally do begin to roll in again, the first thing you will want to do is pay your creditors. Do not allow a missed payment, credit card balance, or any other "hanging balance" to upset your financial equilibrium for any longer than necessary.

Step 10: Repay yourself. In step 2, you stopped investing. When your back pay arrives and after you have repaid your creditors it is important to repay yourself. Restore your emergency fund, reinvest the money you took out of your taxable accounts, and begin contributing to your Roth IRA and other scheduled investments.

It's Going to be Tough:

Lets not kid ourselves. This is likely to be a difficult time to navigate financially. But, through proper planning, slashing expenses and tapping your savings strategically, your family can get through this. Just remember Chapter 2 of the The Military Survival Manual:

"A key ingredient in any survival situation is the mental attitude of the individual(s) involved. Having survival skills is important; having the will to survive is essential."