5 Vital Steps to Protect Your Finances from Government Shutdowns

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If pro is the opposite of con, is progress the opposite of Congress? Given the current state of affairs of the U.S. government, it’s difficult — if not impossible — to even entertain an answer other than “yes” to that question. Congress is once again involved in a political drama, but at least Americans are being reminded about the importance of financial planning in their own lives.

The government began October by conducting a partial shutdown, affecting everything from national parks to numerous agencies and public services. Hundreds of thousands of federal employees were also placed on furlough. The White House blamed the GOP, which controls the House of Representatives, while the Republican Party has in turn pointed the finger at the Obama administration and the Democratic Party, which controls the Senate.

Although it’s too early to know the full effects of the shutdown, many Americans are already feeling the pain. In order to help prevent too much financial suffering from the current shutdown or any future shutdown, WalletHub offers five simple steps to “shutdown-proof” your wallet.

Plant Money

1. Build an Emergency Fund

Maximizing your rainy day fund will help you weather political storms as well as any unforeseen large expenses. It’s also good motivation to separate your wants and needs. According to a report from the Financial Industry Regulatory Authority’s Investor Education Foundation, more than half of Americans do not have an emergency savings fund. Treat the emergency fund as insurance — you may never need it, but if you do, you’ll be better prepared.

“While it may seem like our fate is entirely in the hands of Congress, there are indeed steps that we as consumers can take to prepare for what may come during and after the government shutdown, much like one would batten down the hatches in advance of a hurricane,” said WalletHub CEO Odysseas Papadimitriou. “But mitigating the impact of the shutdown on your finances necessitates planning and financial self-awareness — two areas in which many of us have struggled in recent years.”


2. Fix Variable Rates

Interest rates don’t always move higher in response to the actions on Capitol Hill, but it is possible to see loan rates increase due to budget battles or debt ceiling debates. WalletHub suggests, “As a result, if you have a lot of debt tied up in variable rate loans and lines of credit, it’s worth looking into the possibility of consolidating as much of it as possible into fixed rate loans in order to garner debt stability amidst market turmoil.”

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3. Apply for Additional Credit

You still need to be responsible with your credit usage, but obtaining a new credit card can help ease worries about a temporary cash flow problem during a government shutdown. Many credit cards offer zero percent financing for the first six or 12 months, while a line of credit doesn’t charge interest until money is borrowed.

Earnings Reports

4. Open a Dialogue with Money Billers

When it comes to receiving a break, you never know until you ask. WalletHub explains: “The government shutdown obviously isn’t business as usual, and much like financial institutions were willing to work with customers affected by Hurricane Sandy, many have already announced intentions to be flexible about due dates and finance charges during the unique circumstances we’re currently embroiled in. At the very least, it can’t hurt to ask.”

Closed Sign

5. Offset Investment Risk

Government shutdowns are not common, but they do happen. Over the past four decades, the government has experienced 17 shutdowns, with the average lasting six days and the longest lasting 21 days, according to Morgan Stanley Research.

Stocks often rebound quickly once a government shutdown ends. However, investors seeking peace of mind may want to hedge their bets by diversifying assets and keeping larger cash positions. Some investors may even want to position themselves to profit from a temporary pullback in stocks by accumulating shares in stages to optimize dollar-cost averaging. As always, consider contacting a financial adviser if you have any questions about the best approach for your specific needs.

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