The Personal Finance Angle of the Government Partial Shutdown | Investment Moats Skip to Content

The Personal Finance Angle of the Government Partial Shutdown

My memory of my first encounter with a Government shutdown was a few years ago in 2013.

Back then, it feels like a really big deal, because, with most first time, you do not know how you should feel and what is the impact. Of course, the stock markets was affected, and thus it became somewhat of a concern to me.

This is probably my second experience with a US Government Shutdown.

The first time, I was shocked that the government could shut down because a lot of our lives are weaved together with the services the government provides.

In the United States, from what I understand, the Congress comes up with the budget, the President approves. However, when there are disagreements, the Congress will come up with a shorter term budget to fund the necessities such as defense, labor, education, and health services.

Those discretionary departments such as NASA, IRS, housing and development will be shut down.

The main reason, that President Trump wishes for a shutdown is because Congress refuse to budget in a US$5 billion funding for a wall on the southern border to keep immigrants out.

Now, this for a lot of people is pretty incredulous. They are shocked that Trump actually held the country at ransom over something that is less of a concerned to them.

What if Civil Servants Don’t Get Paid?

This became a concern because a lot of government workers do not get paid, even though they are working.

Their paycheck probably will come after the shut down ends.

However, this is a problem.

Remember there was a lot of those survey done here and there, that ask respondents just how big of an emergency the respondents could not absorb, and the answer is they cannot take a greater than $400 expense.

Well judging by this government shutdown, there are a lot of truth to that.

If you have a 1 month, 2 month or 3 month emergency fund, you could probably better pay for your mortgage and your living expenses, while waiting for the shutdown to be finalized.

However, a lot of people do not have that kind of savings.

With the shutdown, government employees lost 100% of their income.

  1. They cannot pay for their mortgages.
  2. They cannot pay their bills.
  3. And worse, they have to report to work.

I think this shut down would be over, but I wonder how many would have this incident seared into their mind that they would build up a cash holding just to prevent such a thing from happening again?

It might also be another thing as not many believe they could have excess money to save.

In any case, I wonder if such a thing happen in Singapore, what would happen.

There is this narrative that the civil service is an iron rice bowl, a phrase used to describe how sturdy a government job is.

In a few articles on Investment Moats, we have liken working in the government sector to be like an investment bond rather than an equity.

The biggest shock will be that something very improbable, actually happen.

In Singapore, a government shut down is not likely, due to the political system and the way the government is structured. Hypothetically, if an equivalent event happens, I got a feeling many would be as bad.

We are just addicted to that paycheck and we have little room for error.

For some, they are paying some massive debts and without the cash flow coming in, there would be some massive problems.

Budgeting and Spending with Conscientiousness – There is a Priority to What you Spend on

The second lesson we can observe is that there is a priority to what are the expenses that are more important to the Congress and what were less.

Essentially they broke up the expenses to the non-discretionary and the discretionary.

Those that are non-discretionary, they are compelled to come up with something immediate to keep it running.

Those that are discretionary, they debate upon the values, the justification of how much to be budgeted for that type of spending.

I think it shows that for yourself, and your family, you can adopt the same thinking.

Firstly, if you do not have a set of beliefs and values to abide to, it is difficult to prioritize which spending matters more. It is something that your partner and yourself need to discuss.

Some examples can be, I don’t want to go hungry, the kids come first. Then it will be car is just a utility, we try to keep minimum spending there and we give $X to our parents and if there are some problems with money we cut to $X -$Y.

In some of my past commentary, I do advocate framing your expenses in 2 layers:

  1. the survival expenses (you can read more here)
  2. expenses that are discretionary

If you have consistently sought to define which is which, then when it comes to someone shutting you down, or your family shutting down yourself then its easy to see where your cash flow should go to first, and what should be debated upon.

Some Spouse can have Seemingly Absurd Demands

I do liken the behavior of the president of the United States to that of your spouse when he or she asks (or went ahead) to buy something you think is absurd.

At times you might not see the advantage immediately. At times there are no advantages (because its really absurd)

However, I think this is an interesting system of budget planning.

If you do not work it out

  1. you do not get to spend on your discretionary or rich life spending
  2. your spouse do not get to spend on the discretionary or rich life spending
  3. your children too!

So perhaps this would push the family into more pain (and in my article yesterday more growth) or just implode.

Some Decision Makers have No Skin in the Game

I think it didn’t hit me for the first shutdown, but for this one, I venture to consider the prospect that it meant people do not get paid.

And I was shocked that is really the case.

The most angry part for me was hearing politicians saying that this is less of a deal because the workers will eventually get paid.

When you say that, its either you do not pay bills yourself, or that you have cash buffer to endure something like this.

I don’t really like to say you have to have skin in the game in order to understand how people will feel, but in this situation it is really the case.

There is a serious mismatch in urgency to get this thing settled.

Worse, some feels its OK to play poker with citizen’s livelihood.

Summary

If you wish to find out how this shutdown affects the lives of the people, you can follow #ShutdownStories on Twitter.

Reading that itself, might make you a little cautious what if this happen to you.

The government over here has never shut down, and perhaps that is why as a civil servant you might not feel the pain.

Be more conscientious with your money. Don’t wait for an equivalent scenario and then your whole family shuts down as well.

Here are some interesting ones that let’s you know tightly our lives are integrated with the government.

 

Make 2019 a Year of a Little More Pain
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Sinkie

Tuesday 8th of January 2019

There have actually been at least 12 US govt shutdowns since 1980s, but most were less than 1 week. The longest were during Clinton 1996 (21 days) and Obama 2013 (16 days). Clinton's time was quite bad as it involved entire govt shutdown, not just partial.

Current Trump shutdown is into it's 18th day as of 8 Jan 2019.

Funny thing is that shutdowns don't affect politicians' pay? If they do, I think they will have more urgency & seriousness in doing this process! LOL!

I think there's some obscure technical law where the Senate & the House can override the president's veto & pass the spending bill, but need to have 2/3 majority in both Senate & House.

English-style parliament unlikely to have such shutdowns. If cabinet cannot get parliament to approve budget, basically things are already so bad e.g. no confidence of current govt, or breakup of coalition govt, such that a general election would already have been called.

Many of SG civil servant jobs have been downgraded from iron rice bowl to enameled or plastic bowls that can be chipped or cracked while not being totally broken. The bulk of govt jobs are now stat board, agency or worse corporatised where there it is much easier to be fired or retrenched. Many have been converted to renewable contract basis. That's why most SG govt workers are not "civil servants" but instead "public servants" --- there's a strong difference in job contract and security.

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