The other day I was grocery shopping at Meijer when I was approached by a woman with some questions. I thought I would share my conversation with you. The woman explained to me that she was a government employee on furlough and that because of the partial government shutdown she was getting to be in a very desperate situation with regard to how to pay her bills. Her main concerns dealt with the mortgage, charge card and car payment. She told me she tried to get a cash advance from her charge card but was denied. She explained that she virtually has no savings and has been living paycheck to paycheck. She wanted to know from me what she should be doing.
The first thing I told her is that she should be contacting her creditors, such as banks, credit card companies and auto lenders to discuss the situation with them. Many lenders have assistant programs that affected government employees can take advantage of. Some of these programs allow you to skip a payment or have late fees waived. Therefore, particularly for those affected by the partial government shutdown, contacting and working with your lenders is the first option.
I recognize that what a lot of people will do is just stop making payments and wait for the lender to contact them. Unfortunately, this is not the best course of action. Lenders will always be more willing to deal with you when you are proactive and contact them.
I also recommended she contact utility companies and her wireless carrier. Many of these companies have rolled out programs in light of the government shutdown. Unfortunately, these companies do not promote and advertise these programs. Once again, you have to be proactive. Therefore, not only for government employees who are having financial difficulty; but anyone with financial difficulties should be proactive and contact their utilities and wireless carrier to see if the qualify for any of the programs that they have.
I also told her she needs to tighten her belt. She needs to go through her expenses and look at which ones are not essential that she could do away with. It is amazing you can cut back on expenses when you truly have to.
After we discussed a number of other issues I explained to the woman that one way to prevent this from happening in the future is to establish an emergency fund of money. For as long as I’ve been in the investment world I have stressed to people the importance of having an emergency fund of money. My general advice is you need to keep three to six months of living expenses liquid. This money should be kept in the bank and be readily available in times of need. For those government employees who have an emergency fund of money the government shutdown is a hassle; however, it is not going to cause them financial difficulties because they have the emergency fund to tap into. We all know how life is and we all know it takes strange turns. Having an emergency fund of money is not an investment that is going to pay high returns; however, it could substantially improve the quality of your life in times of need. For those who have an emergency fund of money they are able to reduce the pressure on themselves and will not have to make short-term decisions that can cause them long-term substantial harm. Therefore, my advice for everyone is to establish an emergency fund of money. .
One last note, at the end of the conversation the woman mentioned to me that she could borrow money from her parents but that she was a little embarrassed to ask. I told her that she should not be embarrassed and that many people run into financial difficulties during their life and that you should never be embarrassed to seek help from family and friends. After all, isn’t that what family and friends are for – to help in difficult situations? My only advice is that if she asked her parents for a loan, put the terms of the deal in writing so that there’s no confusion. Whenever family members borrow money from other family members I strongly recommend that it be put in writing. Not because the parties don’t trust each other, because after all, why would they loan money to someone they don’t trust. Rather, you put it in writing so there’s no confusion and everyone understands the transaction.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at email@example.com.