How to Maximize Your Severance

by Kevin on January 19, 2012

Long gone are the days where you got a good education, made good grades, got a good job, and retired 35 years later with a gold watch gift from the company for your decades of service. The new world economy is constantly changing and most of today’s graduates can expect to hold 5-15 jobs depending on their industry. Companies are started that change the world within a few years — Twitter and Facebook didn’t exist in the 90s — then are bought, sold, or extinguished through innovation from an unexpected competitor. Additionally entire departments are now being outsourced to service companies or overseas workers.

In this new economy you should expect to receive a severance package at least once in your life when your company either goes under or outsources your work. As unfortunate as losing your job can be, you need to avoid reacting emotionally and maximize your severance so you get the most benefit out of the situation.

When Will I Receive My Severance?

To plan to spend or invest your severance you first need to know when exactly you will be receiving it. The date your severance will be paid to you is dependent on your company and the reason you are receiving a severance. If your company or division is being closed you are probably receiving a severance to help keep the lights on and the company operating until the switch over. The severance needs to be laid out in a contract that the company signs with you. In this contract you should find the date that you must stay employed with the company in order to receive the severance. The whole idea for the severance is to incentivize you to stay long enough to keep the doors open for the transition.

What Should I Do With My Severance?

There’s a bunch of things you could┬ádo with your severance… go on vacation, buy a nice new car, or splurge on eating out. You can enjoy these splurges if you can afford it. Check these three needs first:

Cover Expenses During Unemployment

The only way you can afford to do anything with your severance package is if you have secured employment following being laid off from your company. If you haven’t and are still interviewing, you need to keep as much severance as possible available to pay for your day to day expenses.

Pay Off Debt

If you’ve got employment to follow getting laid off, one of the next best uses for any windfall like a severance is to pay off high-interest debt. Completely paying off debt will free up the cash you are spending each month on the payments which you can further use to pay off other debts.

Finish Your Emergency Fund

If you don’t have an emergency fund then your severance should be used to establish this important financial device. If you’ve started building your emergency fund but have been side tracked by emergencies, then a financial windfall can be used to finish it off.

Hopefully your severance is big enough to finish your emergency fund, pay off some debt, and enjoy some time off, but don’t waste it. It isn’t very often that your employer will hand you thousands of dollars to keep working in your regular job, so hold this opportunity in high regard and maximize the chance to improve your situation.

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