QUESTION: Richard in South Carolina is being sequestered as a federal employee. It means he’ll lose a total of about $9,000 this year. He makes a little over $100,000 a year. Dave doesn’t think Richard’s furlough is going to have nearly as heavy an effect as he’s anticipating.
ANSWER: I don’t think the 2% Social Security is the problem. I think the furlough may really be a problem.
They’re talking about taking 14 days of your pay, and that will amount to about $5,500. A $5,000 hit sits you down? You didn’t tell me you had $60,000 in credit card debt. You told me you had two little piddly debts. You’ve got a car payment and a hospital bill—about $10,000 in debt. You make $100,000 a year and $5,000 is going to knock you to your knees? I thought they were taking half your income the way you were talking.
I think this is doable. What you could do—if you want to—is this: You could take your tax refund and just set that aside as an extra emergency fund. In other words, push pause on your Total Money Makeover plan, which would include Baby Step 2 doing the debt snowball. We’re going to push pause and pile up cash until the storm clouds go away. The storm clouds in your case could go away one of two ways. One is the furlough becomes political gyration that doesn’t really occur and is instead a threat to try to get everybody to the table, which is a reasonable thing. Or you get into it and go, “Well, we’re talking about $400 a month. It’s really not changing my life as much as I thought. I was overreacting, and I can really go ahead and do this.” Then you push play again. I’m not sure which of those will happen. I suspect one of them will.
I would look at your situation like someone who called me up and said, “Hey, Dave. My company just did a slew of layoffs. They didn’t get me this time, but they’re going to do another slew in the next 90 days, and I might be on that list.” I’d tell someone in that situation to push pause, pile up cash because you’re looking at the horizon and there’s a bunch of black clouds coming at you. When that storm goes by, if they don’t get you, then you push play again, get back after it, and clean up the mess. I think either this furlough gets behind you or you realize that it’s really not as big a hit or as devastating as it felt emotionally. You just go on with your life, and everything turns out okay. For now, I’m okay with you saying push pause, throw the cash to the side, and we’re going to use that for an umbrella fund in case it rains.