How to Prepare for the Debt Deadline

As lawmakers try to hash out a solution, the rest of us should start preparing for worst-case scenarios.

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If you’ve been trying to tune out the heated debate over our national debt crisis because the potential consequences are just too scary to imagine, it might be time to join the conversation, because the August 2 deadline is fast-approaching. Social Security checks, access to national parks, and food inspections are among the federally-funded services that could suddenly end if no deal is made.

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In an interview with CBS Evening News, President Obama said at this point, he “cannot guarantee” that Social Security checks will be mailed out on August 3. “There may simply not be the money in the coffers to do it,” he said.

The exact details of the potential financial fallout are hard to come by; House Speaker John Boehner has said “nobody knows” what will happen if the deadline passes without a solution. Bloomberg Government published a helpful interactive graphic detailing which bills could go unpaid, including those for the Federal Aviation Administration and active military duty pay. (In the past, “essential” workers, including air traffic controllers, continued to get paid despite a government shutdown.)

With that uncertainty in mind, here are four steps you can take to prepare for the debt deadline:

Beef up your emergency cash stash. According to a recent survey by Bankrate.com, only 1 out of 4 Americans has an emergency savings account that could last for six months or longer. In fact, 1 in 4 Americans has no emergency savings at all. Those most likely to have the savings are higher-income Americans and those in their 50s and 60s. Those least likely to have saved up are those under 30 and those with low income. Emergency savings are important not just for unexpected expenses such as car repairs, but also to pay bills in the event of job loss. For those who rely on government support such as Social Security checks, emergency savings could serve to bridge the temporary absence of those checks.

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Take a close look at your exposure to government benefits. Do you rely on a Social Security check? Did you plan your August vacation around a visit to a national park or federally-funded museum? Do you receive healthcare support through Medicaid or Medicare, or food stamps? Do you work for the federal government, either in a civilian position or for the military? If so, you might want to develop a Plan B to prepare for a disruption. It’s not always possible, though; government benefits often target lower-income individuals who rely heavily on the support.

Update your saving and investment accounts. The effect of a national default on the securities market is hard to predict; traditionally safe spots such as Treasury bonds could suddenly look very risky, and investors might flood cash into conservative vehicles such as money market funds. Since trying to predict market moves is almost never a winning game, the best approach is the tried-and-true one: Maintain a diversified portfolio, avoid reacting to news by selling (or buying) large shares of investments out of fear, and regularly review your overall exposure to risk to make sure you’re moving toward your goals. (How to Stay Up When Stocks Go Down.)

Settle in for the long haul. After the initial shock of a government shutdown, deeper effects such as job losses, higher interest rates, and general uncertainty could further hobble the economy. While many of those possible trickle-down effects are beyond our control, we can do what we can to protect ourselves by saving more in our emergency funds, having a back-up plan in the event of a lay-off, and focusing on the non-financial things in our lives that will be there whether lawmakers reach a solution on the debt ceiling or not.

Kimberly Palmer (@alphaconsumer) is the author of the book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.