Cash Bloat
May 30, 2009
Ah yes, hindsight. I knew this layoff was coming, most likely mid-year, yet it took me until April to start making appropriate adjustments.
Earlier this year, it was important to have cash on hand, so I cut back on retirement contributions to a bare-bones 3% (not including company match, which was maxed). My reasoning at the time was sound, but flawed due to incomplete knowledge.
Error One: I’m entitled to severance equal to one month pay when I separate from this employer, as well as over 200 hours of vacation pay. Didn’t take that cash payout into consideration. I made this assumption because I hoped to quit before the layoff which would have meant no severance.
Error Two: For another, my cash savings program was much more successful than anticipated. In January, I had $7000 for routine monthly expenses and $23,000 in savings. Since then, I’ve added ~$10,000 to those accounts, all while still paying bills. I could have spared a few thousand for retirement savings, considering the “sale prices” of the past several months, without being cash-poor & investment-rich post-employment.
Error Three: I didn’t consider that I’d be eligible for unemployment, and that it’ll cover all my monthly bills. At the time the plan was conceived, monthly expenses were well over $2000/month, so I estimated needing at least $35,000 in cash for 12 months of unemployment. In the meantime, the truck was sold, the family car was totaled and if nothing else, my monthly needs improved tremendously thanks to both events.
Being that pessimistic means I have an unusual stash of cash, just sitting around, while only having made just a little over $2000 in retirement contributions. Ergh. I hate throwing away both the opportunity to invest at lower prices and the tax benefit.
Don’t get me wrong, I’m certainly not bemoaning doing better than expected, for heaven’s sake. I’m just wishing I’d done a little better at making decisions based on the long-term, or at least considering the whole fiscal year. I subscribe to the “hope for the best, plan for the worst” mentality, but I clearly need to work on my automatic worst-worst-worst case scenario planning reflex. It’s a little dire. After all, it’s not like it’s the Zombie Apocalypse.
Of course, I haven’t hyperventilated about being a bag lady in a while, so maybe that was necessary for peace of mind.
For now, I’ll make a small adjustment to my contributions for the last check and leave payroll alone. Maybe I’ll make a few smaller investments, in addition to the CD I just bought. No sense in fussing too when we have so little time left, not until I learn how to read the future!
[Dear Magic 8-ball: will I find a good, well-paying job with benefits adjusted for COLA this year? What’s that? “Concentrate and ask again”? Hmph. I prefer Neil Gaiman‘s Magic 8-ball. I miss it.]
There’s nothing wrong with having a bit of extra cash. You can always invest it into something short term to get some return on the money (even if its something like an ING account).
Sorry to hear about the job; but for as much as the economy sucks I have started seeing signs that there might be some improvements coming. I’m sure you’ll find yourself another job before you know it. At least you planned for this.
Not considering unemployment benefits was a mistake, but I don’t think you can have too much cash in your current situation. The more you have the more secure you should feel. When you do get a decent new job you can max out your 401k, 403b until the cash runs down or redesignate that cash to a house downpayment fund or whatever. In the meantime you’ll be able to have a bit of fun while unemployed š Though hopefully some good opportunity will come along soon.
Matt: It’s mostly just sitting in low-interest savings now, that’s why I bought that CD (at a whopping 2.25% APY). If I get another job soon, I will probably start locking up more of it once I get settled in.
Best to leave it mainly in cash for now, though.
mOOm: You’re right, when can you really complain about having too much cash? There’s always another area it can be diverted once crisis mode is over. In the meantime, I’m sure that’s a major reason I’m sleeping at nights.