The government barely avoided a shutdown last month. Anything could happen in March though, when the latest continuing resolution expires. Federal employees will get paid. However, they could face an interruption in pay deposits for the duration of a furlough. For those who live paycheck to paycheck, that could be tough. Federal retiree Abe Grungold, of AG Financial Services, joined the Federal Drive with Tom Temin to give some practical advice.
Interview transcript:
Tom Temin: And Abe, yes, we sometimes think, ‘Well, if you’re a senior executive service, you’ve got a little bit of money lying around for a month or two months. We’ve seen longer than that in our lifetimes.’ But not everyone’s at that level and they do live paycheck to paycheck.
Abe Grungold: Yeah. Tom, unfortunately, there are about 3 million active federal employees who are nonessential. And when they’re nonessential, they’re subject to a federal furlough. And unfortunately, that federal furlough can last a week and it could last 35 days as I experienced under the Trump administration. And it’s unfortunate that in today’s high inflation that we’re experiencing, that federal employees are having to deal with the high cost of gas, food and other expenses, including $1.7 trillion in credit card debt. Federal employees are basically, not all of them, but a lot of them are living from paycheck to paycheck. And a federal furlough can put you in a very bad position financially, especially if you are hit with a $1,000 car repair bill or $1,000 medical expense. So how do you prepare for that? You need to build up a cash reserve and you can do that before the next potential federal shutdown, which is coming up in March.
Tom Temin: Well, if you live from paycheck to paycheck, then what do you do to build up that cash? Because that means you got to take some of what you’re spending and not spend it.
Abe Grungold: Yes. You can do some very simple things. And I call this eliminating all unnecessary spending and unnecessary spending could be anything from your daily lunch, your morning Starbucks. If you were to put some coffee in a thermos and brown bag your lunch to work, you could save $15 a day. And $15 a day up until the next federal furlough in March, you could save $1,000 simply by doing that. Now, there are other unnecessary types of spending that you can try to think about and those things are lottery tickets, going to concerts, eating out, having dinner with friends. Simply eliminate those right away.
Tom Temin: And what about some more sophisticated things like managing the debt you might have and seeing if you can finance it at lower rates or change payment schedules, that kind of thing. That’s a little bit more sophisticated, but more long-term in what it can yield for you.
Abe Grungold: Yeah, certainly you can contact your credit card company and try to work with them on your rate. And if you’re experiencing a federal shutdown, you can let them know that and they can hold off any type of interest payments for you. They will work with you. The same is with your utility companies. You need to evaluate them. Do you really need all the streaming services that you are presently having with various media platforms? Maybe you can eliminate some of them and that could save you some money. There are many ways that you can look into your monthly finances. Eliminate them or put them on a temporary hold until you can build up a sufficient cash reserve and hopefully, that cash reserve would be approximately three months of monthly expenses.
Tom Temin: We are speaking with Abe Grungold. He is a retired federal manager and owner of AG Financial Services. And you mentioned an unexpected medical cost. Depending on the health care plan someone has under the FEHB, you still have expenses from time to time. Is there any way to get, I don’t know, the providers to maybe mitigate the payment schedule or take a pay later on because of a furlough or for some mitigating circumstance?
Abe Grungold: Absolutely, Tom. You can contact your medical provider, say you’re having some services done at a hospital or you’re having them done through some other type of medical provider, which is going to be a continuous basis of treatment. And you can ask them to put you on a payment plan. And I have done this many, many times when I was undergoing a lot of treatments in the past. You can ask them to put you on $100 a month or whatever it is that you can afford and they will certainly work with you on this. I have never seen a medical provider deny you a medical payment plan.
Tom Temin: And for those that have anything at all in their TSP and if you look at the distribution of TSP account sizes, thrift savings plan, the longer people work, the more they have in general. Some people only have small accounts; 50, 60, 70, $100,000 you can borrow if you need to from your TSP. But it can be expensive.
Abe Grungold: Well, you certainly can borrow from your TSP. And I had done a borrow loan from my TSP on four separate occasions, and those occasions were to purchase a home, to purchase a car. But if you are in some dire financial situation, you need to borrow 3 to $5,3000 to carry you through the furlough. Yes, you could do that. The TSP loans can be done very quickly. You could probably receive that money within a week after submitting your loan to the TSP and you can do that online. It’s done very quickly today. Yes, you can do that. The interest rate would be comparable to what the G fund rate is and that is your payment interest rate and you’re paying yourself that amount back. You’re not paying it to a bank. So it is a strategy that federal employees can certainly look towards.
Tom Temin: I mean, it is a loan you’re going to have to pay back, which will compound the difficulties in some sense? But you should not consider it in the same breath as a withdrawal, an early withdrawal, that is really costly.
Abe Grungold: Yes. The TSP loan now has a provision that even if you leave federal service, you could still pay back your loan to the TSP. It’s not considered a distribution to you once you terminate. But yes, pay back your loan. There, you can make up a very reasonable payment plan. You can set it up in any way you want and you can accelerate your payments back to your TSP loan once the furlough is over and they have very good options in paying back the loan.
Tom Temin: Any other more drastic or exotic strategies someone could have then to get that money put aside for? Let’s hope there’s no furlough, But you can’t count on anything these days.
Abe Grungold: Tom, there are a few measures that I have done in the past and those things are to start selling things that are in your closet and around your home and sell them on eBay or sell them on Craigslist or a yard sale. And you can quickly collect several hundred dollars in cash and eliminate a lot of those items that really are things that you are probably going to throw away or whatnot. These are excellent ways to build up some fast cash. I sold a lot of my daughter’s toys or bicycles and other types of items that were just sitting in the garage. And I got rid of them and built up some cash really quick.
Tom Temin: And by the way, what’s a good way to sell things nowadays? You don’t have classified newspaper ads anymore to sell this or that. You go on Facebook Marketplace and all you do is get a bunch of creepos. ‘Is it still available?’ And they never show up. So any advice for actually taking that step?
Abe Grungold: Well, yes, that’s an excellent point, Tom. The way that I used to do it is selling on Craigslist. And I had a garage and I would never let people in the house and I would verify that they were coming. When they did arrive, I would open up the garage and have the items sitting there ready for them to look at. And if they wanted to buy it, fine. And if for those people, who live in apartments that don’t have a garage, you can sell them on Facebook Marketplace, but you have to be very careful in screening these potential buyers. And a lot of times people just don’t show up. That’s the name of the game. And I’ve even had that with some neighbors of mine. Yeah, they’ll be there in 30 minutes. They never show up.
Tom Temin: And if they do show up, make sure that Civil War sword is unsheathed.
Abe Grungold: Yes. You have to be very careful. I had cutlery that I wanted to sell, but I realized this was not a good product to sell on the marketplace and I ended up donating it to the Salvation Army. So you have to be very careful what you are selling and it’s always good to have someone there as well or at least someone in your home to say, ‘Hey, I’m going out to the garage, I have someone coming by to buy the cabinet and they’re interested. So I have sold golf clubs, I’ve sold furniture, I’ve sold all sorts of things. And you just have to be very careful in screening people coming to your home.
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