At the beginning of this month, sequestration went into effect. This means sweeping cuts of $85 billion from this fiscal year’s budget. To shore up this shortfall, many agencies are furloughing employees during this time, which effectively is a partial layoff.
I live in an area with a lot of federal government employees, many of whom are my friends, and the furlough will affect them if it’s carried out. The effective pay cut is predicted to be about 20% through the end of September if the furlough runs its course.
The good news is that there must be at least thirty days’ notice given to employees prior to a planned federal employee furlough. So, it does come with some warning.
In anticipation of this, one of my friends is having his family do a “furlough practice month” in March. Here’s what they’re doing:
- My friend plugged his paycheck into a calculator that estimated his take-home pay during the furlough.
- And that’s what their budget is going to be for this month, before the furlough is set to kick in during April. The excess goes into savings until the actual cuts occur.
This is a wise thing to do. They’re heeding the warning and taking action to prepare. It’s wise for several reasons:
- The decrease in pay won’t be a shock. They’ve been living on the tighter budget for a bit, by choice. They have a couple of shots to find the least painful places to cut.
- They have time to adjust if they miss the target a bit. Let’s say the month’s pay was going to go down by $800, but they don’t quite make it and end up with net spending only $500 down for the month. That’s fine! They then know to cut an extra $300.
- They’re building up a buffer. What they don’t spend with their tighter budget this month is a buffer: an emergency fund. Extra buffer is a Very Good Thing if times are tougher.
- They’re setting themselves up for frugal living after the furlough. If the furlough runs its course, it will go on for five months. That’s enough time to get used to living on 20% less. Come October, when pay (supposedly) goes back to normal, it will be like getting a 25% raise if they continue with their furlough-times spending habits. Being able to save or invest 25% is a great thing to be able to do!
Whether the federal employee furlough arrives or not is out of the employees’ control. How they handle it is in their control. So planning to live on less before it happens, and having productive furlough days, will be key in arriving safely — and perhaps in better financial shape — on the other end.