I was recently laid off and was given a severance package that should last about six months. From a personal finance standpoint, what is a good strategy to stretch out my severance in case I am out of work longer than planned?
“There are a couple of things from a general standpoint that probably could help you substantially,” said FPA member James Rawlings, CFP®. “The starting point to these types of questions has to start with your current cash flow. You will want to do a detailed budget of where you are at with your finances right now. You goal is to compare the dollars going out to the income that is coming in. What you have remaining is what would be called discretionary income. This exercise alone can give you a lot of insight as to where you are and how long your funds might last.
“Another item to look for in this exercise is what expenses you currently have in your budget that could either be deferred or temporarily eliminated. Anything you can cut back on will help extend your income, thus providing a greater safety net. These two things are pretty intuitive, but can be extremely useful tools in your future planning. If you haven’t gone through this exercise then you are just guessing as to working through this time in your life.”