What Should I Do With My Severance Pay?

Severance pay could be the biggest paycheck you ever receive, so think very carefully about what you are going to do with it. You may be tempted to go on a wild spending spree with this money, but I would advise against it.  Use the money wisely.

First, pay off any credit card balances you have.  Interest rates are typically very high on credit cards so you will benefit in the long-run if you can get your balances down to zero.  Start with the card balance with the highest interest rate and work your way down.

Secondly, think about making purchases that will help you start making money again, whether it be from employment or starting your own business.  If you will be looking for a job, ask yourself the following questions to determine what you need to buy:

• What clothing will I need for interviews?  Do I need a new suit?
• Can I get to in person interviews?  What public transport options are available?  Do I need a car?  
• Am I physically residing in the place where I want to get a job?  Should I consider moving?  What expenses will be involved?

Consider the following if you plan on starting your own business:

• Can you operate your business from your home? Or do you need to rent or purchase premises for your business?
• Do you need equipment?  Inventory?  A vehicle?
• What licenses or permits do you need?  Do you need to pay fees to form a company?

Finally, if you have have any severance money left over you should save it.  Your period of unemployment may be long and it can be reassuring to have some cash in the bank for emergencies.  See my previous post about how you can get a good interest rate and a bonus $25 when you open a Orange Savings Account with ING DIRECT.