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The "severance economy" is a new term being used to describe the people who have been laid off because of the economy and are living off of their severance packages. The only problem? These folks are living the same lifestyle, even though they no longer have an income—and that means their severance money is quickly running out.
You need to look at severance money as survival money. You know exactly how much you get and, when you make a budget, you can predict when it will run out. Now is the time to live like no one else.
Downsizing your lifestyle is a must. If you're not making the money you used to make, you don't need to live the lifestyle you used to live. Don't eat out or go on vacations. Stop the gym membership. No concert tickets or trips to the salon. Cut all excess spending. You are in survival mode until the money comes in again, so act like it. You can always start again when you become employed.
Sadly, some people don't think like that. According to a Wall Street Journal article, former small-town bank CEO Paul Joegriner got the axe from a $200,000-a-year job, and his family will be out of money in six months unless he finds another job. But they continue to vacation, eat out, and send their children to private school. New Jersey resident Michelle Patterson was laid off in January and didn't stop getting her hair done for $150 a month. When she finally ran out of severance money in August, she started cutting things out, but by that point it was too little, too late.
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Don’t be too picky when job offers are presented. Joegriner has turned down several jobs in the hopes of finding one with a comparable salary to his last position. That is a recipe for disaster. Take a job and get some money coming in! If you are unhappy with the new job, then keep hunting until you land the job you want.
The sooner you find a job after being laid off, the sooner that severance money starts to look like a signing bonus. That can make a huge impact on your current Baby Step. If you are laid off, now is not the time to relax! It's time to pour on the hot coals and quickly find a new job.
When you find new employment and have money coming in again, you can add things back into your lifestyle. But you may find that you survived just fine without some of them!
Need help organzing your money? Check out Dave's online budgeting tools.