What To Do With A Severance Package Or Financial Windfall

Rio De Janeiro Sunset Over The Flavelas

Congratulations for receiving or negotiating a severance package or financial windfall! Severances are not mandatory in many countries, therefore anything you get beyond $0 is a bonus. Hopefully you’ve used the strategies I’ve outlined in my book to get the best severance package possible.

It’s not just the financial windfall that’s so great, it’s the fact that people feel empowered to finally take control of their lives. From the working mother who gets to spend more time with her kids, to the guy who absolutely can’t stand his micromanaging boss, each story is different.

I’d like to discuss ideas for how to spend your severance wisely. This post is pertinent to anybody who has or will receive a financial windfall e.g. inheritance, lottery, legal win, bonus, severance, etc. I’m going to also share with you what I did with my severance and the thought process behind each decision. By the end of the article, you should have a better idea of how to mobilize your money.


1) Do nothing. The number one recommendation I can give for anybody who comes into a lump some of money is to do absolutely nothing for the first month. Once that month is over, shoot for two full months of doing nothing. Money makes people do foolish things, especially those who’ve never had a lot of money to begin with. You might be tempted to buy a vacation property in a destination you hardly visit or buy a new car when you’re existing one works just fine. You might start thinking you’re Warren Buffet and invest in “sure things.” Give yourself as much time as possible to let your windfall sink in. Go about spending and saving like you’ve always been doing. Do not to let new money change you.

What I did: After receiving a lump sum severance check after my three month WARN Act pay was over, I took my friends out to dinner and celebrated! I was very tempted to finally buy a new used car to replace 12 year old Moose, but reminded myself that Moose worked fine. The money sat in my pitiful 0.1% money market savings account for two full months before I decided to invest a big slug of it in a Dow Jones structured note which provided 100% downside protection and 115% participation to the upside over six years last summer.

2) Assess your financial situation. During your one month plus long of doing nothing with your money, you should create a spreadsheet and list all your spending. See where you can cut as well as include surprise expenses in your budget. Also spend time calculating your passive and alternative active income streams. Once you’ve calculated your monthly and annual expenditure figures, you should compare these figures against your financial windfall. How many months can you live just off your severance alone? If your financial windfall is sufficiently large ($100,000+), consider hiring a fee-only financial advisor to help you set up a framework to make your money last.

What I did: I’ve had a running budget for the past 13 years since college. Living in Manhattan on $40,000 a year my first year out of school was difficult! Hello roomie in a studio. After rechecking my monthly and annual expenditures, I calculated my severance package would realistically cover roughly six years of living expenses. I then made some expenditure adjustments for “living it up” and “living it down” to come up with a range of 4-8 years worth of living expenses. I tallied up my various passive income streams, which will be earmarked as 100% savings as I try and live off my online endeavors.

3) Decide which path to take. Before engineering your layoff, inheriting money, or coming to a settlement, you should already have been mentally planning for your future. Scenario analysis is key. Now that you know the outcome (the amount of your windfall), it’s time to make decisions on what’s next. Do you want to look for a new job in a new industry? Do you plan to start a new business? Are you going to travel the world? Have you always wanted to be a Whale and put $100,000 on black? Don’t do that. Your severance package gives you a runway to plan. When it comes to financial freedom, planning is tantamount. The best case is where you can double or triple your income for a period of time.

What I did: With six years worth of extra living expenses, I knew there would be temptation to just slack off. To get slacking off out of my system, I took a three week trip to Europe and went to Hawaii three times in six months to surf and play golf. Once I was back to normal, I decided to give myself one full year of full-time entrepreneurship before making a decision on what’s next. By June 2013, I will have either reached my one year financial goals with entrepreneurship, or I will have failed. If I fail, I will then strongly consider finding a new job in a new field to keep my enthusiasm at its highest. Worst case is that my online endeavors will be better than if I had never given my full attention.

4) Make your money disappear. There will always be the temptation to spend our money if it’s readily accessible. Therefore, consider protecting yourself from yourself by spreading your money in investments based on your own risk tolerance. Consider giving some of the money to your parents who’ve spent all these years taking care of you and asking so little in return. Lock your money up in a CD or park your money in an online savings account.

What I did: Within six months, I made 100% of my severance package disappear. Part of it was sent to a 1% yielding online savings account, which blows doors off the average money market rate of 0.1%-0.2%. A good chunk of it was locked up in a six year structured note. A little was sent to my parents for some home maintenance projects. While the rest of it was used to pay some principal off my highest interest rate rental property mortgage. In other words, I spent nothing directly on myself! But, that’s OK because it gives me great pleasure knowing that my money strength is improving. I feel stupid spending money on things I don’t need. Perhaps if I was still 28, I would have used some of the money to buy a 2013 Range Rover SuperCharger, but I’m over it already.

5) Expect the unexpected. If you do not have any recurring passive income or existing liquid savings, keep at least six months worth of living expenses handy. Good and bad things happen all the time. It can easily take longer than six months to find your ideal job and your business can easily fail. On the other hand, fear is a powerful motivator. When you have no financial security net, no big government, no bank of mom and dad, you do everything in your power to create income to survive.

What I’m doing: Although I hope for the best everyday, I expect the worst. There will be times in my entrepreneurial endeavors where hardly enough comes in to pay for food. No matter. A great way to lose some weight! There are monthly Google algorithm updates which could theoretically wipe out 70-80% of this site’s entire traffic. My server could implode, Amazon could lose my backup data, who knows! As a result, I’m diversifying my traffic sources and online income streams as methodically fast as I can so that if one piston breaks, I’ve got multi pistons remaining to drive this Pinto.

6) Start your own business. Getting laid off with a severance might just be the catalyst to finally start that business you’ve always wanted to start. The best business is an online business because it’s easy to set up, easy to maintain, and hugely scaleable with 3 billion+ people online. Start one with Bluehost for less than $4/month and you get a free domain name for a year. Once you establish a platform online, you’ll be amazed at how many opportunities come to you.

What I’m doing: I’m actively growing ONIG Financial Blog since I first started it as a personal journal in 2009. The site now makes more than my day job as an Executive Director in Finance while working 80% less and being 100% more free. I truly believe the blogging business is the most fun and rewarding business in the world. Learn how to start one yourself in 30 minutes with my step-by-step tutorial guide. 

Pro Blogging Income Statement

Having a website can provide you the freedom and flexibility you desire.


If you live in the developed world, you’ve got a plethora of opportunities thanks to the Internet, a solid legal system, and good public infrastructure. If you live in a developing world, then change can bring about tremendous upside by nature of where you lie in the pyramid.

In America, big government has ironically provided us more opportunity to take risks. The trick is to not get lulled into complacency by big safety nets. Use the safety net to invent your great flying machine and jump off a cliff instead!

Never get, get laid off folks. Check out my book: How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye to learn how to negotiate a severance. I negotiated five years worth of living expenses when I left in 2012 and it’s been the best thing ever. The book has now been expanded to 180 pages in its third edition thanks to terrific reader feedback and successful case studies.

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Photo: Sunset Over Ipanema Beach, Rio. 2021. 

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