We heard so much doom and gloom earlier this year about the sequester. Some thought it would be so bad that Congress wouldn’t let it pass. But, pass it did. How has it affected our nation? How is it impacting the finances of individual Americans?
Decline in Government Jobs
Just before the sequester took effect SaveUp posted a summary titled, The Sequester in a Nutshell. It outlined facts about the legislation as well as a few of the predicted effects…some of which have come to fruition. One example is the decline in government jobs.
It’s understandable that we’d fear any legislation that would affect jobs numbers negatively. Therefore, I looked at the May jobs report to review the possible impact. According to a Wall Street Journal, “Federal government employment fell by 14,000 last month and is down 45,000 jobs since March, the month across-the-board spending cuts were put into place.” That doesn’t sound promising. Yet, the unemployment rate is 7.6% which, according to the article, is a slight increase over last month, but a decrease in the 8.2% unemployment rate of a year ago.
More Effects of the Sequester
In addition to the loss of jobs, the sequester has caused a few other changes. According to David Wessel, who recently spoke on NPR’s Morning Edition, you’re most likely to see changes in places that receive significant federal funding. He cites things that range from the military mowing lawns less frequently and closed bathrooms in national parks to furloughs and reduced housing vouchers for low-income Americans. If you’re in one of the latter groups, the sequestration can be devastating, even if the macroeconomic data isn’t widely impacted.
Making Ends Meet
As a CFP, my interest lies in how this affects the personal finances of individuals. For those just barely making ends meet, these “small” changes can have a devastating effect. They can mean the difference between paying the bills or falling deep into debt. As I’ve mentioned before in previous posts, small amounts can add up over time when saving, but when there is a shortfall the cumulative effect can be detrimental. These lost jobs are a reminder to us all of the importance of an emergency fund. This is a pool of money set aside for just such a catastrophe; you can think of it as self-insurance. Having some money set aside specifically for a job loss or other unexpected expense, can protect you from experiencing significant life style cutbacks, declaring bankruptcy or dipping into retirement savings.
Long-Term Effects of the Sequester
David Wessel also indicates that long term effects might be subtle. If no legislative changes are made, the sequester is due to stay in place for 10 years. Cuts could be notable over that time period, and possibly beyond. Therefore, the doomsday scenario hasn’t happened, but we’re not necessarily out of the woods just yet. There is concern that the impact of restricted government spending will continue to accumulate.
Now we have a better sense of how the sequester has impacted us up to this point. It’s important to cut through media hype, so that we can make informed and rational ih decisions about our personal finances. I help clients create a personal financial plan and create durable strategies so they can SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.