 Email this  Print this License or reprint this articleASK KIM I'm going to be laid off in May, and I will receive a severance package of four to five months' salary (about $12,000). How should I invest the money? Even though the money might seem like a windfall, you need to be careful with it until you get a new job because you don't know how long that will take. Marc Minker, a CPA in New York City, recommends that you figure out what expenses you can cut back until you find a new job, then put enough money in a money-market account to cover three to six months' worth of essential outlays. He recommends depositing the rest of the money in a six-month CD or Treasury bill. "It's short-term and liquid if you need it, but psychologically you have it locked up," he says. To search for the best rates in your area, see our Yields & Rates page. Only after you get a new job should you consider the money a bonus that you can put toward other financial goals -- such as paying off high-interest credit card debt, maximizing your contributions to your 401(k), if offered by your new employer, and investing the maximum in a Roth IRA ($4,000 in 2005, with an extra $500 for people age 50 and older). See our IRA Owner's Manual for more information about the income limits for qualifying for Roth IRAs and ways to make the most of the accounts. After you've covered those bases, then think about your other financial goals, whether it's to buy a house in a few years, pay for college if you have children, or beef up your retirement savings even more. For ideas of mutual funds to invest in for any of these goals, see our Kiplinger's portfolios. The long-term portfolio can give you some investing ideas for your IRA, while the short-term portfolio can help for money you're setting aside to buy a house. And for our favorite 529 plans for college savings, see our college savings plan map. | |
