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Preparing for Sequestration – Tips for Taking a 20% Pay Cut

2013 March 25

charlie_imageAs of March 1, 2013 the automatic budget cuts of $1.2 trillion are set to take effect for lots of government employees, which is known as sequestration. For most folks these budget cuts haven’t gone into affect, but are set to take affect in mid-April (depending on what branch of the government). These cuts will reduce most federal employees’ income by about 20%, which isn’t easy for anyone! Regardless of your political views or in-differences about these cuts it doesn’t help to wallow and complain, but this time should be used to prepare. 



In a way, the “furloughs” are like a giant financial tsunami coming for their budgets. I’d guess most people that are in civilian positions have a hard time believing that this 20% haircut is actually going to hit them. However, the reality will hit when 20% of their pay isn’t direct deposited in their checking account. At that point you’ll be behind the curve, and it’ll start to feel like you’re swimming against the tide.

Now is the time to prepare. Now is the time to square away your finances, and “hunker down” in your financial bunker house. Here are a few suggestions that will help you get through the next 6 months of living off 20% less pay.

 Fixed Expenses

  • Cell Phones – look at different ways of getting off your high smart phone data plans that cost on average $60-90/month. Check out other alternatives like tracfone, straighttalk, or net10. These alternatives can save you at least $30/month.
  • Home Rent – if you’re renting now, then look at any alternatives that could save you $200-$500/month. I’d suspect that most people that work near government buildings will or have already started looking at renting vs buying. Get on this now, so in a month you aren’t competing with everyone else looking at reducing their rent too!
  • Tithing/Donations – this subject’s reduction is purely personal choice, but if you take a 20% paycut, then look at reducing your tithe by a equal percentage. I’m not suggesting reducing your 10% tithe to 8%, but the total amount you’ll be giving will be less. So if you make $3500/month (before sequestration) and you give $350/month, then your tithe would be able to go to $280/month ($3500*80%=$2800*10%=$280). See where God’s leading you, and make the decision as a family. Every aspect of your finances should be looked at through these tough times.

Variable Expenses

  • Food – there is a couple of options here. First, look at getting into using coupons to save immediately. It usually takes about a month to get a good coupon system setup, so start now. The other option is with spring soon approaching, now would be a great time to plan starting a garden, or create a community garden. I’m reminded of how big my grandpa’s garden was during the depression (1+ acre) and how they only went to town for flour, sugar, and gas. Everything else was produced and preserved from the garden. I couldn’t think of any better time to start a garden! You could call it your “Sequestration Garden”. Sounds legit doesn’t it! :)
  • Entertainment – a big variable expense for most people that will need to be cut is entertainment. This could be anything from movie night to dvd rentals to Jon Bon Jovi concert tickets. Look for coupons or discounts when you still want to enjoy some entertainment, but not pay full price. Check out your local newspaper or TV station deal sites, groupon, or living social.
  • Cable/Satellite – lots of TV providers are looking at keeping their existing customers, and are willing to negotiate. Whether you trying Comcast, Cox, DirectTV, or Dish Network, all are willing to work with you. Like Aaron wrote about lowering your Comcast bill, it can save you a few dollars in this critical time. Every dollar helps! If the 20% cuts effect your budget that much, then look at cutting cable completely, and leveraging Netflix or Amazon Prime. These alternatives can save you about $30-60/month.

Income

  • Multiple Streams of Income – like I talk about frequently it’s important not to be solely relying on a single stream of income, but have multiple ways your family is able to generate cash. During sequestration this will be extremely important, so get a head start. A good starting point is my process diagrams I created in April 2012 in my article, “How to stop living paycheck to paycheck – passive income.” Also look at making an investment that generate monthly cash flow for your family like Vanguard’s Managed Payout Funds.
  • Hoard Cash – now is a time when a mountain of cash will come in handy! :) Easier said than done, right. As obvious a hoard of cash will benefit you  it needs to be stressed the importance of having an emergency fund will be during these tough times. If you don’t have one now, then make it through this sequestration, and learn from your experience and build up that emergency fund.

Whether you are going through sequestration or taking a 20% pay cut, I hope these tips will help anyone that is looking at a signficant paycut, and provide a few ideas to survive. These are just a few of my ideas, but I’d love to hear what ideas our readers would use to prepare for sequestration or take a 20% pay cut. What money saving tips do you have?

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Charlie

An IT professional, Charlie also buys and sells liens, lives on the cheap, runs marathons and helps to run his family farm. In his spare moments, he raises 3 children, does the dishes and writes one post a week. His former blog, Frugal Retirement Plan, has been cited by US News and World Report.

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6 Responses
  1. March 25, 2013

    I don’t understand your government. It seems they are prepared to cut great programs like Head Start but want to keep Saturday mail delivery.

    Looking at your government from my side of the border in Canada I have to wonder about your priorities. I believe in eliminating debt and that extreme cuts are needed but couldn’t they be a little more humane and consider the health and education of your citizens?

  2. March 25, 2013

    This is very interesting and I love the way you addressed tithing – something that families will have to take into account- too bad about the cutbacks…I used to enjoy working for the state but soon afterwards they began slimming back and the great benefits no longer outweighed the lower pay for me personally.

  3. Sally Newton permalink
    March 26, 2013

    You either have to buy coupons or use printer paper. Where do you ser the savings there. And when you make so little you don’t have a home phone or cell how can I cut back there. I am better off then most as my home is paid for. But living on a set savings budget it is hard to chipped off any fat.

  4. March 26, 2013

    Well I started to save up since the rumblings of the Fiscal Cliff so as of now I’m in pretty good shape. But the Vanguard Managed Payout Funds is what caught my eye in this post. I read the other post that you wrote specifically about it and I want to know do you have to select or you just put in the cash and they will handle the rest?

  5. March 29, 2013

    Credit card expenditures are the hardest things to deal with and most (except gasoline) are discretionary. I’ve just got used to buying stuff. Often, if I really stopped to think, I really don’t need it after all. Look at your old credit card bill and walk through it line by line. Like me, you might be surprised how a little here and there really adds up. Also, learn to pray…a lot.

  6. March 29, 2013

    @Jane – I don’t understand our government at times either. To the common citizen the spend more, and reduce a little doesn’t make sense. Keep detesting debt and eliminating it.

    @Sally – using coupons (both printed and from the Sunday paper) will easily pay for themselves and more! I used them for 3+ years and speak from first hand knowledge.

    @Caesar – you need to choose one of the three vanguard managed payout funds. Each one has a different focus, so make sure you research which fund will fit your portfolio.

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