With the government shutdown going into its 26th day over the Trump administration’s crusade to fund a border wall — at this point, over half of Americans feel he is responsible for the unprecedented disruption to society — many different federal agencies have issued “tips” to their unpaid employees on how to manage their finances while waiting for backpay.
Some feel many of the tips have been cringeworthy and unhelpful, suggesting that furloughed employees pick up side hustles as dog walkers, unskilled handymen, or even host a garage sale to liquidate all of those valuables that they’ve had sitting around. Frankly, when you’re in a major financial bind, side hustles won’t pay the high-stakes bills that actually matter. Americans whose households pull in under $70,000 of income each year (the median household income is about $60,000) typically have between $500 to $2,200 saved up, if they have any savings at all. That’s not even close enough to covering the financial burden of a nearly month-long shutdown.
Take a step back before you let anyone blame you for your tenuous financial circumstances. For many of us, not having a savings account has a lot to do with forces beyond our immediate control: the high costs of healthcare and childcare, not being paid a living wage, financial illiteracy, predatory models of debt. The deck is stacked against us.
However, federal employee or not, this shutdown should make it very clear that it’s up to you to deal with this financial burden you’ve been given. Having enough money saved up in an emergency fund can be a godsend in times of crises. No matter who you are, it’s only a matter of time before you encounter unplanned, expensive responsibilities.
Here’s how you can get started on building up an emergency fund, even if you are starting from scratch:
Assess Your Cash Flow
The first thing that everyone can and should do is track every dollar that’s going into and out of your household each month. Starting today, keep a log of each bill you’re paying, the cost of each grocery store run, the size of each payday, literally every single financial transaction that occurs. You can do this on pen and paper, on a digital spreadsheet, or even through an app like Mint.
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As you’re logging your transactions, make a note of which transactions are fixed — meaning, they are exactly the same each month, like payday, rent, and debt payments — and which transactions fluctuate or are one-time purchases, even necessities like groceries and utilities; if you have access to previous bank statements and a few hours of free time, go through two or three months of your finances and do this as well. Your cash flow is going to be different each month, so this will give you a better sense of what to expect.
Set Your Financial Intentions and Prioritize
Before you make any changes to your financial habits, set your intentions. How much money do you ideally want to have saved up in an emergency fund? There’s no right answer, but financial gurus suggest that you aim to have an emergency fund that can cover at least three months’ worth of living expenses.
If you’re living paycheck to paycheck and making $60,000 each year, that means you’ll eventually need to save up at least $15,000 in your emergency fund. That should be enough to get you through a short period where you’re unable to work due to injury or job loss…or a really long federal shutdown. Having an emergency fund will also be a huge help in managing unexpected financial obligations like major home repairs, funeral costs, unpaid caregiving of sick family members, etc.
Speaking of credit cards, you might be wondering about what to do with credit card debt. No matter what, pay your minimums each month; those are fixed expenses, because not paying them incurs crazy penalties. From there, you will want to assess your priorities: emergency fund or debt reduction?
Do you have any money saved up in an emergency fund? If not, focus on putting away at least $1,000 before you start chipping away at credit card debt. Credit card debt is expensive, but without having any money saved up, you’d have to rely on your credit card to cover unexpected bills. Having even a little financial flexibility can go a long way in keeping you out of a vicious cycle of debt. When you do have at least a bit of money saved up, you might opt to work on both your emergency fund and your credit card debt.
Do the Math
Now, take a closer look at your cash flow. The math is simple, but this is where the hard work begins: in order to have money leftover each month to put into an emergency fund, you need to have more money coming in than going out.
Are there any areas where you are happy to cut costs? Looking at your cash flow, you might realize that you spend more money than you realized on a daily coffee and bagel before heading to work. Spending five bucks a day on this habit can add up to over $100 each month, and you might decide that you’re equally happy to have breakfast at home, which will cost you way less. That extra $80 or so that you’ve freed up might not seem like much, but after a year you’ll have put away $1,000 without breaking a sweat.
Are there other places where you are willing to make cuts until you reach your goals? This is the difficult part where you’re sacrificing short-term wants for long-term gains. That could mean anything like making a conscious effort to borrow things that you need rather than going out to buy them, cutting back on dining out and cooking at home instead, and yes, as one federal agency suggested, checking out movies from the library rather than paying for Netflix. Only make sacrifices that you’re genuinely willing and able to make, then give those sacrifices a test run to make sure they’re sustainable.
Note: If you cut costs here and there and still find that you can’t more money than you’re spending, then you will need to make drastic changes to your life that go beyond saving up for an emergency fund.
Draw Up a Realistic Budget
If you are able to free up some money each month based on your average cash flow, congratulations! You have everything you need to start building up an emergency fund. Open up a savings account dedicated only to your emergency fund, or find a really good shoebox to put your stacks in.
Overall, it’s critical that you keep a healthy and realistic perspective on your long-term savings plans. Sure, you could spend the absolute bare minimum every month, putting every single penny away so that you’re all work and no play. You might be okay doing that for a couple of months, especially if you have absolutely nothing saved up, but in the long run that’s going to burn you out and leave you feeling hopeless about your savings plans. A better plan is to make a structured budget that will keep you on track of your long-term goals. This will take out any of the uncertainty and guilt you might have in what you’re spending.
Let’s say you are able to free up an extra $150 each month — the equivalent of setting aside an extra $5 or $6 every day — and you’re aiming for that $15,000 goal. It’s going to take you a long time to reach that figure (almost a decade) but that’s okay because you’ve made a monthly spending plan that ensures you’ll get there, no matter what. By the end of year one, you’ll have put away nearly $2,000. Even that modest savings just might save you from big financial problems. If you want to speed up the process, trying making more cuts to increase your cash flow and put any extra income (e.g. tax returns, bonuses) into your emergency fund — but don’t feel obligated to pinch every extra penny you make.
Accept that you won’t reach your monthly savings goals from time to time; just because building up an emergency fund is doable doesn’t mean that it’s always easy. Most importantly, remind yourself that saving money isn’t a punishment, but rather a luxury that will give you financial security during times of unexpected hardship.