Significant shifts in power can lead to interruptions in the government. With such a massive overturn as we experienced in the most recent election, the concern of a government shutdown is lurking in the minds of many. These events can lead to uncertainty about the impact on the economy, financial markets, and personal finances for those who rely on government paychecks or contracts.

With the headlines buzzing, it's easy for the "What if Monster" to creep in and make you worry about your financial stability. You may worry about delayed paychecks, market volatility, or economic slowdowns due to an impending shutdown. However, we can tell you from experience and long-term data that while shutdowns can cause short-term disruptions, strong financial planning provides the stability you need to navigate temporary times of uncertainty with confidence.

What Happens During a Government Shutdown?

A government shutdown is when Congress fails to pass a funding bill - typically due to voting disputes. This leads to a temporary closure of non-essential federal operations due to a lack of legal funding. Core services like Social Security, Medicare, and National Security will continue to operate. However, other acutely essential aspects can be affected by the shutdown.

• Government Employee Pay
  • Certain federal government employees may experience a delayed paycheck.
  • This is usually compensated with backpay once the shutdown is over.
• Federal Benefits
  • Some federal benefits and services may be put on hold for a temporary lack of funding.
  • These benefits will resume when the funding bill is passed.
• Economic Growth
  • If prolonged, a shutdown can impact the growth of consumer and commercial economic forces.
  • These markets recover quickly when the interruption is removed.
• Market Volatility
  • More mercurial markets and traders may become volatile during the government shutdown.
  • Long-term strategies are often unaffected by this temporary blip.

While a shutdown can cause temporary disruptions, financial markets, and the broader economy have historically recovered once government funding resumes.

How a Shutdown Could Affect You

A government shutdown is not without impact, and awareness of how that impact can affect you can help you prepare for the tumultuous waters ahead. The effect of a government shutdown primarily depends on how long it lasts.

• Stock Market Volatility
  • The stock market may experience short-term spikes or dips in stock value. However, historical data shows that markets almost always stabilize back to normal levels.
• Federal Employee and Contractor Pay
  • Paychecks and benefits can experience a temporary delay that results in financial stress. However, if you can hold out, backpay will be granted after the shutdown concludes.
• Tax Refunds and Loan Processing
  • Essential IRS functions continue, but certain federal tax services may be delayed. This can include the processing of federally backed loans, such as mortgages and small business loans.
• Consumer Confidence and Spending
  • A prolonged government shutdown can influence the overall economic momentum.

Keeping the 'What if Monster' Quiet

A government shutdown may be an unsettling occurrence, but it is not as big a disaster as it seems. Preparation and thoughtful financial planning can help you to minimize the impact on your finances, both regarding short-term funds and long-term goals. The following steps can help you manage your finances smoothly and keep the "What if Monster" at bay.

1. Emergency Fund

• Prepare your savings to cover 3-6 months of expenses. This can provide a cushion if you rely on federally sourced income that might be disruptive.

1. Long-Term Investment

• Stick to your long-term investment strategy. While markets can fluctuate during a government shutdown, responding to this volatility can be more harmful than beneficial. Hold fast and wait for the market to re-stabilize. Your long-term goals will likely stay on course.

1. Plan for Federal Service Delays

• If you rely on federal services, be aware that delays are possible. Make plans for interim services, stock up on supplies, and contact alternative support organizations to help you get through.

1. Minimize Expenses

• If you anticipate that an imminent shutdown could impact your finances, minimize unnecessary spending to help your budget flex more efficiently according to circumstances and needs.

Final Thoughts

Government shutdowns, while upsetting, are a natural part of our democratic system. Sometimes Congress has disagreements and the Federal budget is delayed as a result. These shutdowns come and go, but greater market trends are more powerful.

Shutdowns can cause temporary financial disruption, but they should not derail a well-thought-out financial plan. By preparing for interruptions in advance and focusing on your long-term financial health, you can keep the "What if Monster" from disturbing your sleep or your household stability.

If you have concerns about how a government shutdown may affect your financial future, we're here to help. Let's review your strategy and ensure you're prepared for any uncertainty that comes your way.

Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.