Anticipating the first of 11 unpaid furlough days next month, Laurie Vroman has been trying to set aside extra cash when she can. That hasn't been easy for the single mom, who works at the U.S. Army Watervliet Arsenal near Albany, N.Y., so Vroman says she'll likely cut back on summer activities and find free things to do close to home to reduce gas spending. "I'm using coupons more and trying to be more cautious in what I spend," she says.
Because of sequestration, thousands of employees at federal agencies, including the U.S. Department of Labor, Internal Revenue Service and federal courts, face unpaid furloughs this year. As state and local governments cope with budget issues of their own, those workers may confront similar financial challenges as well.
Larry Rosenthal, president of Rosenthal Wealth Management Group in northern Virginia, has many federal employees as clients. Some have called Rosenthal's office expressing concern. "They're making cuts on the least important discretionary items, putting off getting a new car or remodeling the kitchen," he says. "I'd rather see people make cuts [than have a household deficit]. Some people might say 'sooner or later my wages will come back,' but there's no guarantee of that, and you might get caught in a debt storm."
Government workers have already dealt with pay freezes over the past few years, so furloughs are especially concerning to those who don't have a large cash reserve, says Bill Dougan, national president of the National Federation of Federal Employees, a union representing roughly 110,000 government workers. "Most of our members are middle-class workers, so they don't have necessarily these large savings accounts built up or huge retirement accounts that they could turn to to cushion the effects of losing those furlough days' pay," he says. "Many of them at the lower grades live paycheck to paycheck. Many of them are frightened about whether they'll be able to pay bills on time and meet the needs of their families."
According to Dougan, the number of furlough days varies depending on the agency, but he's seen some workers coping with as many as 22 days. Spread out over the year, losing that many days of pay can equate to roughly a 20 percent reduction in pay.
NFFE union representative Liz McDargh works for the U.S. Department of Housing and Urban Development in California and started the first of seven furlough days last month. To compensate for the reduction in pay, McDargh says she's lowered her retirement contributions and stopped contributing to her daughter's college fund. "My union members are cutting back on driving and moving to buses and metro," she says. "I'm an environmental person so I think that's great, but the problem is the commute time can double when you go to mass transit." She's also seen union members deferring medical treatments or car maintenance to cut costs.
McDargh worries not just about the immediate financial impact on her family and colleagues but also the long-term implications. "It's affecting our new generation of federal employees and making them look at options outside of public service," she says. "We're losing our new talent because they're going into agencies that are not furloughed or private industry. It used to be a career path for civic-minded individuals, but that's no longer true."
In addition to cutting back, here's a look at other financial strategies for coping with unpaid furloughs.
[See: 50 Smart Money Moves.]
Set aside money now. For workers facing a potential furlough in the future, experts recommend socking away money in advance when possible. "We communicated early with our members that they needed to start setting aside extra money if they could," Dougan says.
Get a second job. Dougan says workers who have a financial cushion may spend furlough days with their families, pursuing hobbies or tackling household tasks. "But there is a significant part of the federal workforce that doesn't really have enough of a financial buffer," he says. "Many of those people will be looking at opportunities for part-time work to fill that one day a week and make up those lost wages."
Apply for help. Federal employees experiencing financial hardship can apply for grants, no-interest loans of up to $1,000 or college scholarships through organizations like the Federal Employee Education & Assistance Fund. Dougan, who serves on the FEEA board, says numerous federal employees have called FEEA asking about potential assistance. "FEEA is anticipating trying to make a whole lot of money available to folks," he says.
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