Hi everyone – before you read this post, please be sure to read Part 1; it’s a quick two-minute read and it lays the foundation for maximizing your severance payments. This requires two fundamental principles – not spending your severance until you land your next job and looking at your long-term goals. This is so important that I will repeat it again very simply:
The key to maximizing your severance is to avoid spending it until you land your next job (or income-producing gig).
You can avoid spending your severance by considering the tips that I listed in Part 1.
You can also avoid spending your severance if you view it differently in your mind. For example, I consider a severance payment to a be a money “windfall” because it normally comes at an unplanned time and is outside of your normal cash flow (i.e. regular paychecks). Believe it or not, we receive money windfalls all time – in the form of birthday gifts, income tax refunds, bonus checks, inheritances, refund checks from overpayment of bills, an extra $5 that you find in your pockets while doing laundry – you name it. The key is identifying these unexpected blessings as windfalls and treating them as such. Read more about Windfalls here.
So what should you do with a money windfall, no matter how large or small the amount? I recommend putting it aside and saving it. This is also where your list of long-term goals will come into play.
Let’s say that you’ve made your long-term goal list, like I recommended in Maximizing Your Severance Payments – Part 1. Most often, you’ll notice that these goals include a financial component. So please take a few moment to estimate the money required to reach your long-term goals. Your updated list might look like this:
Start a savings account for small emergencies - $500
Finally payoff your student loan - $2,500
Payoff your child's braces - $3,000
Start an household emergency fund (3-6 months of expenses) - $4,500
Payoff your car loan - $6,000
Payoff your home someday - $70,000 (I like to dream big!)
Your list will be very personalized, but you may have noticed two things are missing from the list:
A date for you to reach each goal – I recommend leaving that off initially, because it can feel daunting to list a date. However, simply writing your goal down and viewing it occasionally will keep that dream alive. And when the windfall comes, you will remember that goal.
Credit card payoffs are not included in the goal list – I recommend adding terminal goals to your list, meaning once you pay these items off, there’s no immediate risk of having to pay them off again. Student loans are a great example because once that account is paid off, you can't add a new balance to it. This is very different from a credit card where you could pay it off today, only to charge it back up again within the next few months. I've personally found much more satisfaction in paying off my student loans once and for all after 11 years of payments, versus paying off my Macy’s card over and over again, only to keep charging on it. For more tips on managing credit card payments during a layoff period, watch this quick video.
Well there you have it – two ways to maximize your severance payments. I’m certain these tips will work for you! Let me know your thoughts; I'd love to hear from you.
Your personal coach,
Tamara