We don’t talk about it often but one fear you might face as a W2 employee is a layoff. In a matter of moments, you can go from feeling secure to financial insecurity.
In this episode, I discuss how to navigate a layoff and offer valuable tips on managing a severance package effectively. I start with a practical exercise to help you determine your “minimum viable number” through a budget analysis. I also recommend applying for unemployment benefits or assistance to make your severance last longer. Additionally, I explain how to structure your withdrawals like a regular paycheck and why understanding your finances empowers you to negotiate future job offers effectively.
Whether you’re worried about being laid off or know someone who is, this episode is for you! Tune in for advice on making the most out of your severance package.
Learn how to manage your severance package after a layoff and listen for these key insights…
- [01:25] Why debt should not be your number one concern
- [04:39] Calculating your minimum viable number to live off of
- [07:18] Leveraging your severance to continue the paycheck cycle
Tune into this episode of Money Files to learn how to make the most out of your severance package.
Are you ready to start asking for help with your finances? Apply to work with me, and let’s start working towards your financial goals.
If you loved this conversation about Unpacking Your Severance: How to Manage Money During A Layoff, check out my episode How Fake Math Is Killing Your Budget!
Transcript for “Unpacking Your Severance: How to Manage Money During A Layoff ”
Intro: Hi, and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work everyday with professional women and solopreneurs to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances.
Keina: Hello and welcome back to another episode of Money Files. I actually want to talk to you about something a little different, but I think that it can be timely and relevant, especially if you’re in this position. You are worried about being in this position, or even if you know someone who’s in this position and you want to pass this along. I know we actually are in a really, we’re in a different job market. I have heard just like out and about in my regular life, not necessarily in my financial coaching world of people being out of work. I’ve had clients while I’ve been working with them who have gotten laid off. I’ve had clients come to me since they’ve been laid off. And one of the things that can happen when people are going through a layoff or even have a down period of work is that they are getting a severance package.
And so I just want to give you some tips that if you are in that position, you’re worried about being in that position, like I said, or if you know someone in that position, for how to manage your severance and also know that your severance is negotiable. I should also tell you that because I had a client who negotiated her severance package and the first part that I want you to be thinking about with your severance package, and if you’re worried about being laid off, is I don’t actually want you to be worried about how much debt you’re in right now. I know that I think some people’s inclination is to go and pay off debt. That should not be your number one concern at the moment. What I actually want to make sure that you have is a budget. I want you to grab my spending plan that’s going to be in my show notes, and I want you to get all your numbers in one place.
The reason I want you to get your numbers in one place is because right now you’re just spending whatever you get. If you make $7,000 a month, you spend $7,000 a month, that doesn’t necessarily mean that you need $7,000 to live off of. And so by being able to put all of your numbers in one place, you can see what do I actually need to live off of? And so when I’m thinking about your spending plan in this case or your budget, you are going to first do a version that includes you saving money. It’s going to include your bills, it’s going to include groceries, like you’re going to blow it up for what you’re doing right now. Then the thing that you’re going to do is you’re going to create a copy of that budget. And I want you to be asking yourself, what are the things that I can let go of that I don’t need to worry about while I’m in between jobs?
So you might choose to get your nails done less while you’re in between jobs, or maybe you’re going to be spending a little bit less on gas because you aren’t going to be driving to work. Something else that might be true is that maybe you cut back on eating out because you’re going to stick to your groceries. You may even lower your grocery budget because you may just choose some different options. It’s kind of one of the things that I think about. It’s your peanut butter and jelly budget. Like what are the things that you need in order to keep the lights on? And knowing that minimum viable number, if you will, can provide you some comfort for how you can manage your severance package.
It’s not always necessary for you to continue just living in the same way that you’re living. And I would say that whether it is Keina, I’m getting 30 days of a severance package or 60 days of a severance package or 90 days of a severance package. But really understanding what is your minimum viable number? Because what you’re going to be able to do is you are going to be able to take stock of like, okay, here’s what I’m getting in severance. Maybe you have some money in savings, but you’re going to be able to paint yourself a picture for where you’re going. If you find out that your minimum viable number is $4,000 a month, like that’s all you need to live off of, if you cut back on some of the things that aren’t required for you to live, like getting your nails done, it’s going to give you a lot of comfort.
Let’s say if you have a severance package of $20,000 and you’re like, okay, well that can take me five months. Like I can job search for five months and I know that I can pay all my bills. I know I wouldn’t even have to dip into my savings if I only needed $4,000 a month to live off of. That’s first and foremost to find your minimal viable number. The other thing within this too, in talking to clients, like this is where I actually get really real. I’m like, Hey, make sure that you apply for food stamps. Make sure you apply for unemployment. Get some assistance, especially when I’m working with clients in high cost of living areas. Like I know your food can be $400 a month, $600 a month, whatever that looks like. And so being able to reduce some of those costs is going to help you lean in, be able to leverage your severance package, but it’s also going to create less financial stress for you so that you have the head face to be able to job search.
My goal in helping you know your minimum viable number plus understand the benefits that are out there for you in terms of unemployment or if you decide to apply for food stamps, is that that’s going to be some income for you in the interim that you get to leverage and that you use. If you get unemployment and that’s something that you choose to do, make sure that you actually account for taxes, because I want to make sure that you don’t get hit with a tax bill on the backend. So I would definitely tell you to ask them to withhold taxes. If you don’t want to ask them to withhold taxes, then withhold those, like set aside 20%, 30% yourself into another account so that that way come April that you’re not having to pay taxes that you hadn’t accounted for. So that’s the other thing that I want you to be paying attention to.
And then I want you to think about when you get your severance, the thing I always suggest, especially after you know your minimum viable number, is I want you actually to put your severance in a savings account. I don’t want it to go into your normal checking account, I want you to put it somewhere else. And then I want you to pay yourself just like you were being paid. So it may not be the same amount, but I want you to continue and keep up with your paycheck cycle. If you got paid on the 15th and the 30th, if you got paid once a month, if you got paid every week, I want you to take your minimum viable number. So let’s say it was $4,000 and if you get paid every single week, then you would pay yourself a thousand dollars a week from that savings account and that’s the money that you would be responsible for managing.
If you get paid twice a month on the 15th and the 30th, you would pay yourself $2,000 on the 15th and the 30th, but you would continue that cadence. Continuing that cadence is going to help you also continue to manage your money well and help you not stray to like, especially if you have debt that you’re thinking about, not be consumed by the debt. Also not to be really stressed about whether or not like, oh my goodness, how am I going to pay all my bills? You are going to still have that paycheck dopamine hit that you currently have and you’re going to be able to think in a way that feels very balanced for you about what your next steps are. If you do in fact get unemployment and I was just saying like your minimum viable income is $4,000 a month, say your unemployment is a thousand dollars a month, then you would only pull $3,000 a month from your severance package.
All of these little things are things that can help that amount go a lot further and help you build out some financial stability for you as you think about how you’re applying for jobs. As you think about how you’re managing your income for when you’re applying for jobs, and also like having your numbers all in one place as you apply for jobs. It’s going to allow you to also think about how much money do I need to be making to cover all of my expenses or what is the minimum amount that I could accept to cover my expenses? Especially if you are thinking about accepting a job that maybe is just a position to hold you over and you are thinking about it from the financial standpoint. I haven’t ever been laid off, but in building my business, I decided that you can’t just live off your savings. And so I did take another job and that job paid me about $20,000 less than my previous job.
But because I knew my numbers, I knew that I could take a $20,000 pay cut and I would be okay. I wasn’t going to miss out on anything, and it gave me the financial stability that I needed as I was building my business. So that’s why numbers are important. That’s how numbers can help you actually see what you need and numbers can support you in your financial decision making. A budget just isn’t about spending money. A budget can also help you just take care of your financial wellbeing, especially in a situation that can feel very triggering in a place like, being laid off or even having to take a leave of absence from work and understanding, okay, what can I do with the money that I make?
So if you are, like I said, experiencing a layoff or you are thinking about like, okay, will I be laid off? Actually sitting down, looking at your numbers, understanding your minimum viable income and then factoring in if you have any unemployment is going to be essential and crucial. If you are in the midst of a layoff and you have your severance, you can also recalibrate. Maybe you haven’t been paying yourself in the way that I’m describing. You can start doing this right now by being able to look at your severance package in terms of like, how many months can I live off of this? And knowing and having all of your bills in one place, I think is one of the most crucial steps, like I said, to just having that financial security for yourself and knowing how much of a runway you have or even putting yourself in this position where you are negotiating for additional severance.
So I just wanted to drop this podcast because I have worked with clients, like I said, that have been laid off, have come to me in the midst of a layoff and I enjoy being able to help people regardless of where they are financially. I know that you may be a listener, that maybe you’re experiencing this yourself. I don’t know you personally, but I want to be able to support you and, or maybe someone who is going through this, and so you’re like, oh, like here’s a different way for you to actually be able to think through your finances. So please feel free. Take this message and pass it along because I want you to know that regardless of where you are in your finances, there is an opportunity for you to shift and change what you’re doing, how you’re thinking, and even how you’re feeling. So thank you so much for tuning in and have a great week, and I look forward to talking to you next week.
Outro: Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment and let’s get started.
