In the recent past, thousands of employees have been laid off from their respective organisations, from Amazon, Google parent Alphabet, Microsoft, and SAP to IBM, to name a few. You must be careful about your finances if you are among those facing a layoff and offered a severance package. Your decisions will impact you for at least the next few months.
Here are three financial planning tips to help you get the most out of your severance package.
Don't Panic & Get Organised: Typically, your hard-earned savings come out when you get laid off. The leave encashment that monetizes the leaves you never took, Provident Fund (PF), which was part of your cost to the company (CTC), gratuity, and maybe a few months' basic pay in case you are lucky. Only top employees like the ex-Twitter CEO has the privilege of falling back on a fortune of millions of dollars. "In case you are among the former, the first thing you must do is not withdraw your PF. If you haven't retired but are just switching a job, 'don't panic' are the magical two words you need to remind yourself, especially if you have huge equated monthly installments (EMIs) hitting your bank account every month. First, draw out your list of monthly outflows. Let's call this amount X. Now add up all your current savings, fixed deposits (FDs), mutual funds, stocks, ESOPs that have vested, etc., along with the cash you just received from your company upon being laid off. Let's call this Y. Now divide Y by X. If this number is above 24, there is no need to worry. All you have to do is to take a week or two off and start preparing for your next assignment," explains Chenthil Iyer, founder and chief strategist of Horus Financial Consultants.
Consider the situation of a movie star who just finished shooting for a movie and has gone to the Maldives to chill out for a few weeks, only to come back and be on the hunt for her next assignment. "If the number is more than 12 but less than 24, you may still take a week off but have to start prepping for the next assignment almost immediately. Only if that number is less than 12 do you need to worry a bit. If you try sincerely, you should get your new job within three months. If you are in the last category, I would advise you to compromise on the position and salary in the next job as your survival may be at stake. Otherwise, you may be patient enough to wait for an appropriate role," adds Iyer.
Invest Your Money In What You Always Wanted To Do: If this number mentioned above happens to be more than 60, this layoff may be a blessing in disguise for you. Many of you might have been just bored with your job and didn't take the plunge out of it due to personal insecurities. Now that you are out of it, it may be an opportunity to pursue what you have always loved, like starting a business or converting your hobby into a profession. This would require some seed capital and a gestation period before giving you a steady income. "The severance package may very well be the seed capital you were looking for, and you can give yourself two to three years to switch to your dream career. Doing what one loves to do ensures you don't burn out; on the contrary, it increases your active and productive life span. In the long run, you may earn much more money than you would in a high-paying job that wears you out. This new pursuit can also give you the much-needed personal time to get back to good health, spend more quality time with your family and friends, and increase the Happiness Quotient of your life," adds Iyer.
Stay Confident, And Reach Out To People: The second most important aspect is handling the mental pressure from all friends and family. For many in the middle-class segment, being employed is a status symbol, and it may be emotionally draining to be without a job. That is why you must keep reminding yourself that you are just on a break, confidently addressing people that you are on vacation, and evaluating a few opportunities to start your second innings. Never hesitate to reach out to your professional network and announce your availability. Recently a man's emotional note went viral on linked in, and he received multiple job offers within no time. So, reach out, and help will come.
