Financially plan now for the next furlough fret

By Suzanne Kubota
Senior Internet Editor
FederalNewsRadio.com

With a pay freeze in effect, some feds already face financial worries. Now with looming furlough possibilities, talk of trimming $1.3 billion from the federal budget by cutting federal pay, cutting the federal workforce by 10 percent and freezing pay for up to five years, the worry this could all be part of a trend.

Arthur Stein, a certified financial planner with SPC Financial in Rockville, Maryland, told Federal News Radio “there are lots of benefits that they could go after” including cost of living, health insurance subsidies, and matching contributions to the Thrift Savings Plan.

The result, said Stein, is that federal employee and retiree “financial planning has become much more difficult and much more important. They need to be much more careful about not incurring debt, building up savings and investments and things like that, because what once seemed like the three legged stool that was so guaranteed, I don’t know if the guarantees are there anymore.”

Stein said the one thing that’s unique about federal employees is “Congress can do anything they want. A private company, if they cut a promised benefit, a legally guaranteed benefit, they have legal problems. Maybe Congress can do it and not have those legal problems because they’re the federal government. All I know is there’s this big move to sort of go after the feds and, you know, this is one way to do it.”

The bottom line rests on two things, said Stein: build up savings and investments and reduce debt. “The one good thing about that is that’s a smart thing to do anyway. Most people don’t save and invest enough, and many people have too much debt.”

The most important thing, once the current threat of a shutdown furlough passes, is to do whatever it takes to get rid of credit card debt.

After that, said Stein, max out TSP contributions and have an emergency fund.

I know people are sick of hearing me talk about an emergency fund, but all of a sudden my recommendation for federal employees as to how big an emergency fund they need…I mean I used to say if you have three months, that should be fine, but now I would say maybe you need more than that. I mean, who knows how far this could go.

If you have any doubt about how important that can be, just ask any one of the estimated 800,000 federal employees who may be about to be furloughed if they wish they had three or even six months worth of a cushion in the bank.

Stein said once this budget battle passes, there’s still the 2012 budget to get through. “This is an ongoing crisis,” said Stein.

If you don’t have enough of an emergency fund, or if you run it down or deplete it, Stein suggested reducing TSP contributions to five percent.

Then “look at your expenditures. Figure out where your money’s going. Is there something that you don’t need that you could cut without affecting your enjoyment of life, and lots of people find that they can.”

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