Between Jobs – 7 Ways to Manage Money between “engagements”.

Though the economy has been gradually improving, job changes – both involuntary and voluntary – remain a fact of working life.

How to benefit from money management between jobs

“It’s also a fact that bills need to be paid whether you’re employed or not,” says J.J. Montanaro, a certified financial planner with USAA.

To help you cover expenses and protect your finances as you transition from one job to the next, Montanaro offers these tips.

How to collect your final pay

If leaving your job wasn’t your idea, your employer may provide a severance package to ease the financial pain. Amounts vary, but one or two weeks of salary for each year you’ve worked at the company is typical. If you’re given a choice of a lump sum or a stream of payments, consider these factors:

  • Benefits. If employee benefits (health care, life insurance, long-term care) continue as long as you’re receiving payments, you may want to take the option that prolongs them.
  • Your financial discipline. Afraid you might squander a lump sum? If your severance payment provides enough cash to justify dividing it up, choosing periodic payments will help keep you in pay cheque mode.

“If leaving your job wasn’t your idea, your employer may provide a severance package to ease the financial pain.”

Unemployment benefits

If your employer let you go – provided you weren’t fired for misconduct – you’ll probably qualify for unemployment benefits. If you quit, usually you can collect benefits only if you left for “good cause,” which generally means there was a problem at work or personal situation so difficult that you had no alternative.

Reduce your spending

If your decision to leave was involuntary and your next employment is an unknown, it’s important to preserve your cash while you’re out of work; this can require a top-to-bottom examination of where your money goes. “This exercise can help keep you afloat today and be an engine for paying off debt and saving once the paycheques start again,” Montanaro says. Put off big-ticket purchases and reduce discretionary expenses as much as possible.

Strengthen your emergency fund

Use your severance pay, unemployment benefits and any money you can save to build a cash stockpile. Keep enough money in a savings account to pay at least three to six months’ expenses . Be careful not to lock away money that you’ll need.

Avoid cleaning your financial slate

While you may be tempted to use your severance or other assets to pay off your car, credit cards or other debt, you may be better off making only the required or minimal payments. This strategy can stretch your cash and help you meet living expenses in case a new job isn’t right around the corner.

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