Budgeting with severance pay?

What are some ideas about budgeting with a lump sum severance over several months, with potential unemployment pay as well? I'm going from a bi-weekly paycheck/budgeting system to this and need some ideas and tips. I haven't seen much about this on the forums, and figured I'd start a topic centered around it. 

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  • Budget all funds you won't need in the current month to a Deferred Income category, and release some from the category every month.

    Reply Like 5
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 wk ago
      • Reported - view

      nolesrule agree, withdraw from it like you're getting a paycheck. Also gives you an idea how long it will last. 

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      • Marcus
      • mrcssndrs
      • 2 wk ago
      • Reported - view

      nolesrule Thank you for the reply. So would that mean to budget my monthly bills first from this category each month, and keep the rest of the lump sum in that category? That also gives me the idea to budget weekly for groceries, fuel, etc. after my known bills are budgeted for on a monthly basis.

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    • Marcus You've got the money in advance, you might as well make a plan for the entire month.

      Reply Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 wk ago
      • 1
      • Reported - view

      Marcus You still need to budget for upcoming non-monthly expenses. Those don't go away just because you are in between jobs. Whether it's from severance, unemployment or an income interruption fund doesn't matter.

      Reply Like 1
      • Marcus
      • mrcssndrs
      • 2 wk ago
      • Reported - view

      nolesrule Yes, are you talking about expenses like vehicle registration and annual subscriptions?

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 wk ago
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      Marcus Yes. Particularly those that are not optional. The optional ones can always be canceled if necessary.

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      • Marcus
      • mrcssndrs
      • 2 wk ago
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      nolesrule Got it, thanks for all of your help! All of the advice is going to make this upcoming time easier. Greatly appreciated.

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      • Just Joan
      • just_joan
      • 13 days ago
      • 2
      • Reported - view

      Marcus I'm in the same position, too.  I made a category called Reserved Funds and am paying myself twice a month from there, so that I stay on my paycheck rhythm.  I'm a new YNAB user and still figuring out the best method to make sure I'm covering my spending categories and bills.  I've got a combo of category names/dates/amounts, goals, and recurring transactions.  

      I understand the concept of moving funds from one budgeted category to another if you go over, but I don't like the loss of the feedback (that I spent more than I planned to) which what happens if I do that.   I don't mind adjusting my spending plan if I see that my circumstances have changed (we have more or fewer people living at home, for example) but I want to be able to see that I planned to spend $xx for February but actually spent $xxx - was it one-time, was it lack of discipline, was it a stretch where we traveled a lot, worked a lot, etc?  I don't want to wait until I get a few months down the road to see spending trends.  

      Reply Like 2
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 13 days ago
      • Reported - view

      Just Joan I'm new as well. I'm guessing you flip month to month in the past and see what categories were not green. I looked at the reports, but I don't have enough history for them to look useful yet. 

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      • Marcus
      • mrcssndrs
      • 13 days ago
      • Reported - view

      Just Joan Yea I agree with this because I can see my spending trends better when budgeting weekly/bi-weekly. For bills, I usually split them up over the 2-3 checks I used to get (as well as large one-time/annual expenses over time) and had a better handle of where I was overspending. 

       

      My single biggest variable expense is eating out, which I'm planning on doing less of since I'll have more time and energy to prep meals at home. 

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  • At least in my state, register for unemployment as soon as you have the release papers from your employer. It takes 2 weeks here to process the paperwork. You'll be ahead. 

    Reply Like 1
      • Agent99
      • Working to Get Smart at budgeting, finances and life
      • Agent99.1
      • 13 days ago
      • Reported - view

      Ben K.  In some cases, when you get a severance, especially if it is several months pay; you cannot apply for unemployment until the income runs out.   For example, if you get six months of income for severance, you cannot apply for unemployment until you have been unemployed for six months.  Marcus  please check your severance paperwork and state requirements before registering for unemployment. 

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      • Just Joan
      • just_joan
      • 13 days ago
      • 1
      • Reported - view

      Agent99 in the unemployment processes I've seen in several states (from the employer standpoint), the applicant reports the amount of money they've gotten from their employer, whether vacation paid out or severance or whatever.  In some states, this delays when unemployment benefits kick in and in other states (Massachusetts), those payments are irrelevant.  I have always advised people to go apply right away because that starts any waiting period that might apply and gets you in the system so benefits can be paid when it's time, if they haven't found a job in the meantime.

      Reply Like 1
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 13 days ago
      • Reported - view

      Agent99 Good to know.

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      • Marcus
      • mrcssndrs
      • 13 days ago
      • Reported - view

      Ben K. I've already applied (the same day I was laid off actually, company recommended) and from what I heard from my job and research online, I should be able to get unemployment pay with my severance (Texas).  Having the steady direct deposits from unemployment will help, because it'll allow me to avoid bank fees from not having a certain amount deposited per month (as well as stretch my severance pay out longer).

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      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 12 days ago
      • Reported - view

      Marcus cool! It's better than nothing. Now, time to make a plan. I've been in this spot twice, not fun. 

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      • dakinemaui
      • dakinemaui
      • 12 days ago
      • 2
      • Reported - view

      In many cases, you can sign a waiver of some sort that you won't sue the company, and the "severance" is not treated as advance salary. (It's instead compensation for that no-sue agreement.) You can then apply for unemployment immediately. This is likely job-dependent, so check with your ex-employer's HR department.

      Reply Like 2
  • Agree with the idea of a Deferred Income category.  Another thing to consider is estimate when your next paycheck or unemployment check will be.  Then budget in your True Expenses categories your predicted spending until then.  That way, you will at least allocate funds ala Rule Two until your next check and know how much you can safely withdraw each month from Deferred Income.

    Reply Like 2
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