Stay Ahead of a Government Shutdown and Learn How to Invest Extra Money Wisely
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of NerdWallet's Smart Money Podcast addresses two critical financial concerns: navigating another potential federal government shutdown and helping listeners transition from basic financial habits to more sophisticated money management. (00:46) The hosts Sean Piles and Elizabeth Aiola tackle the practical implications of government shutdowns on everyday Americans, from Social Security payments to airport delays, while also providing actionable investment guidance for a 30-year-old listener ready to level up his financial strategy. (11:15)
• Main themes: Government shutdown preparedness, transitioning from emergency fund building to investment strategies, and automating financial habits for long-term wealth building
Speakers
Sean Piles
Sean Piles is a co-host of NerdWallet's Smart Money Podcast and serves as a financial planner. He brings practical expertise to complex financial topics and has a knack for creative analogies and scenarios to make financial concepts accessible to listeners.
Elizabeth Aiola
Elizabeth Aiola is a co-host of NerdWallet's Smart Money Podcast who specializes in personal finance education. She provides clear, actionable advice on investment strategies, retirement planning, and automated savings systems, with particular expertise in helping listeners build sustainable financial habits.
Anna Hilhosky
Anna Hilhosky is NerdWallet's news colleague who covers financial policy and government affairs. She provides detailed analysis of how federal government shutdowns impact everyday Americans, drawing from extensive research on historical shutdowns and their practical consequences.
Key Takeaways
Automate Your Investment Strategy After Building Emergency Funds
Once you've established a solid emergency fund, the next critical step is creating automated investment habits. (16:00) Elizabeth emphasizes that automation removes the guesswork and emotional decision-making from investing. Kevin, the listener, had successfully built his emergency fund through consistent monthly contributions, but was struggling with where to direct his $600 monthly surplus. The key insight is that successful investors don't rely on sporadic contributions when they "remember" to invest - they create systems that work regardless of their daily focus. This applies whether you're using IRAs, solo 401(k)s, or taxable brokerage accounts. The automation ensures consistency, which is crucial for compound growth over time.
Leverage Business Ownership for Enhanced Retirement Savings
Self-employed individuals and business owners have access to significantly higher contribution limits through solo 401(k)s and SEP-IRAs. (18:46) Elizabeth reveals that while traditional IRAs limit contributions to $7,000 annually in 2025, business owners can contribute much more through these specialized accounts. Kevin's robotics business, despite being small-scale, qualified him for these enhanced savings vehicles. This strategy is particularly powerful because these contributions can reduce taxable income while building retirement wealth. For anyone with freelance income, consulting work, or a side business, establishing proper business documentation with the IRS opens doors to these superior retirement savings options that can accelerate wealth building significantly compared to traditional employee benefits.
Government Shutdowns Create Predictable Disruptions Across Multiple Systems
Understanding which services continue and which halt during government shutdowns helps citizens prepare effectively. (03:54) Anna explains that while Social Security payments continue, administrative delays affect disability determinations and earnings record corrections. Essential workers like TSA agents and air traffic controllers work without pay, but historically this leads to callouts that ground flights - as seen when just 10 absent controllers at LaGuardia caused widespread East Coast delays in 2019. (06:00) Food safety inspections pause, with the FDA delaying hundreds of inspections during past shutdowns. The pattern shows that short shutdowns create inconvenience, but extended ones strain critical systems from food assistance to air travel infrastructure.
Balance Multiple Financial Goals Through Strategic Allocation
You don't have to choose between retirement savings and other major goals like homeownership - strategic allocation allows pursuit of multiple objectives simultaneously. (20:10) Elizabeth emphasizes that with proper planning and realistic timelines, Kevin's $600 monthly surplus could support both retirement contributions and house down payment savings. The key is understanding your time horizon for each goal and adjusting allocation accordingly. For retirement, longer timeframes allow for more aggressive growth strategies through index funds and mutual funds. For shorter-term goals like home purchases, more conservative approaches may be appropriate. The critical insight is that starting with automated systems for your highest-priority goal (typically retirement) and then adding secondary goals prevents analysis paralysis.
Choose Low-Cost Index Funds for Long-Term Wealth Building
Index funds provide superior value for most investors compared to actively managed alternatives due to lower fees and broader diversification. (24:48) Elizabeth outlines three key factors when selecting index funds: expense ratios (annual fees charged to shareholders), performance history across multiple timeframes, and low tracking error that closely mirrors benchmark indices like the S&P 500. Index funds essentially provide a "basket" of stocks in a single purchase, eliminating the need for individual stock research and selection. (26:10) Compared to mutual funds, index funds typically offer lower fees while still providing diversification benefits, making them ideal for hands-off investors who want their money working efficiently without constant oversight.
Statistics & Facts
- There have been 21 government shutdowns since 1976, with the 2018-2019 shutdown being the longest in history at 35 days, caused by disputes over border wall funding. (04:26)
- Traditional IRA contribution limits are $7,000 for 2025, significantly lower than the enhanced limits available through solo 401(k)s and SEP-IRAs for business owners. (17:44)
- During the 2013 government shutdown, the EPA halted inspections for 1,200 hazardous waste, drinking water, and chemical facility sites, while the FDA delayed 900 food and pharmaceutical inspections. (09:22)
