What to do with a P1M separation package
Browsing through Pinoy Money Talk, a thread caught my eye. PMT member ahock posted a hypothetical question regarding being laid off. In a nutshell (and editing it), here’s ahock’s question:
Can you give an unsolicited advice for people who will be laid off and don’t know what will they do with their money? These are the scenarios and assumptions:
* Two kids are in elementary
* Wife is a homemaker
* No emergency fund
* Will take one year to get a job
* 1M net is the separation/redundant pay of the father
* No debt except for mortgage/rent
Earlier, I posted an entry on how to survive the economic crisis (see link). Given the assumptions and hypothetical scenarios that ahock posted, these are my suggestions:
1. Determine the fixed monthly expenses.
These should be electricity, water, rent, grocery, insurance, car maintenance, etc. Because the assumption is that two kids are in elementary school and the missus is a homemaker, you need to determine how much are the annual tuition of the two kids and then divide it into 12.
Let’s assume the fixed monthly expenses of the household, including tuition, is at P40,000. When you arrive at a number, multiply it by 12 (meaning 12 months it will take daddy to get a job) and save it at a high-interest time deposit or special deposit account (SDA).
With P480,000 earmarked for emergency fund, you will have about PhP520,000 left.
2. Cut the fat and stick with the budget.
Because the dad is laid off, it is important that all family members are updated on the financial status of the company. Dad and mom should lay the cards on the table and tell the kids what they need to contribute to the well-being of the family. The kids must forego buying their lunch at the school cafeteria and just make do with mommy’s homecooked meal. Mommy has to stop getting her weekly spa until Dad gets a regular job. Daddy has to stop souping up the family car.
Whatever sacrifices you commit to do, keep in mind that you are doing this for the family.
3. Decide on what to do with the remaining money.
PhP520,000 is quite a sum of money that you can grow easily. If you choose the safer track, you can place the entire money in a high-interest time deposit like First Country Bank’s Katuparan Special Savings (see related link). PhP520,000 at a 90-day holding period will give you PhP8,580 every quarter. Kept for one year, you will earn around PhP37,000.
If dad or mom doesn’t have a life insurance in place, I suggest that they get one. Some life insurance have low payments and short paying periods. My own life insurance from Sunlife has a premium of PhP300,000 with a quarterly payment of PhP2,300, payable in 10 years. The life insurance is important in case something happens to dad or mom.
Personally, I’d prefer if the remaining money is placed in a safe and sound investment instrument until the dad finally gets a job. Because the family is in an unstable position, the money should be accessible anytime needed.
4. Start a small business.
To augment the family income and since dad is still searching for a job, you can allot a small amount of money and start a business. A cell-phone load business can be set up for PhP10,000. If you don’t want to touch your money, you can also gather items from your home that are still in good condition but you no longer use. You can set a Multiply or eBay account and sell them online (see Earn extra through online selling). The idea is to make money out of items that you and your family no longer use. You can also hold a garage sale. You can gather your kids’ old toys, your husband’s old pants, sell the bags you no longer like, and make money out of it.