Military Guide to Surviving a Government Shutdown

The day that wasn't supposed to come, has come and gone. The budget sequester was signed by President Obama on 1 March, 2013...

And guess what, the sun still rose in the East on the 2nd of March. We all still went to work. Paychecks didn't bounce. In fact, the last five days have been, in large part anti-climactic for most government employees, including members of the military.

But that doesn't mean that change isn't coming. 

What form that change will take remains to be seen, and as such it is the responsible thing for military members to prepare for any eventuality, including the possibility of a government shutdown come the end of this month, when the federal government's continuing resolution comes to an end.

If the continuing resolution is allowed to expire, it is likely that 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. 

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 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 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.

Fact is, although the military will continue to serve at home and abroad. Military members may not receive a paycheck 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.

Now, we're not saying this will happen. Only that there's a good chance it may. 

Here's how to prepare yourself, and a step by step guide to surviving any shutdown... 

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, 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.

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.

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 any 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.

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.

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. 

Looking for more information on military personal finance and how to prepare for any eventuality?

Buy our E-Book entitled A Field Guide to Your Finances for only $2.99. 

Photo By: Bob Jagendorf