Advice for a mustachian layoff

[kmm]

My job is going away in a couple of months. I've always been a frugal saver type so this isn't a crisis, and may be an opportunity to try some consulting work I've always wanted to do. Emergency fund, retirement and taxable savings are all in good shape, along with a couple of passive income streams, no debt other than  mortgage, and relatively low regular expenses, so I feel like I have some time and flexibility. I'm curious what other Mustachians might do in my position to maximize financials during this transition period. For example, should I adjust my 401K withholdings way upward to get as much as possible in there in the two months I have remaining, since I likely won't have access to another 401K anytime soon? Also, I'll be getting some severance, and I'm wondering if I should add it to my emergency fund just to be safe, or invest it either lump sum or DCA through the end of the year. And I got a tax refund of a few thousand this year so I'm wondering if I should adjust my withholdings so that the remaining checks I receive are bigger.

I'll need to buy health insurance, and don't expect that the consulting work will replace my salary anytime soon, but I think I can cut expenses enough to get by while it gets up and running, so I'm hoping I won't even need to tap the emergency fund. But, you never know when a major expense will knock you for a loop.

Thoughts?

[Milspecstache]

How many months worth of expenses do you have in your emergency fund?

How sure are you of the consulting job?  Do you already have an offer?

[kmm]

How many months worth of expenses do you have in your emergency fund?

How sure are you of the consulting job?  Do you already have an offer?

I have a year's worth of expenses in my emergency fund. The severance would almost double that.

I don't have an offer, just an idea and a decent network. I'll still apply for regular jobs too.

[Blindsquirrel]

   If it were me, I would not put any more $ in the 401K other than to get any match. If it turns out you need it, do not lock it away where the tax man will slaughter you if you need to withdraw it.  That is the worst possible outcome. If it turns out you do not need it and land a new job, you can always jack up your 401K/IRA contributions using what you have left from the severance. Just my opinion.

[Cheddar Stacker]

You need to check out the optimize your taxes thread if you haven't already (link at the bottom). You have a very unique opportunity this year. Obviously you don't know exactly what the future holds with consulting or other income from new ventures, but I would plan to earn nothing more and make your tax return work for you. If you end up earning more, even better.

I would definitely do everything you can to max out your 401K before you are let go. This might be your last opportunity at a 401K if you just end up starting your own little consulting boutique, so take advantage.

Go for the savers credit, maybe the EIC, maybe some ACA subsidies. You have a 2 year cushion, so you clearly don't need the cash right away. Next year if your income is still low, optimize again. 2015 might be the perfect time for a conversion to a Roth IRA to "use up" your exemptions/deductions.

Good luck in your next endeavor, whatever it turns out to be.

https://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/msg211541/#msg211541

[kmm]

Thanks for the advice from PPs and the link - that was an interesting read! I need to dig into that more.

I should add, I have pretty substantial non-retirement assets beyond my e-fund, about 15x annual expenses, and a rental property with solid equity. So I am close to FI but not quite there yet, especially since I have a young child. I'm not worried about running out of money in the short term, but I AM worried about making moves that won't set me up well for this next phase of life. I don't want to be too conservative with funds that could be working for me, but also don't want to overestimate my ability to hit the ground running with a new venture when I've never worked for myself before.

If I wasn't almost FI, I'd definitely stay the traditional job seeking course. But I'm so close...!

[Chuck]

You have one year's expenses on hand? Plus severance?

You're fine for cash. Try to max your 401k for this year in the time you have remaining. Don't forget your HSA, if you have one. Remember to file for unemployment insurance the week you lose your job. Attempt to solidify the consulting gig while on UI.

[kmm]

Don't forget your HSA, if you have one. Remember to file for unemployment insurance the week you lose your job. Attempt to solidify the consulting gig while on UI.

I wish on the HSA - my employer doesn't offer one. I hope I'll be able to set one up while self-employed since the tax savings look great.

Unfortunately in my state I can't file for unemployment until my severance period is up, which won't be until early fall. But at least if I'm not earning anything at that point, the clock starts then and continues for 30 weeks.

On the plus side I put out a couple of feelers today and have a small project to start on soon!

Remember that if you work as a freelance consultant you can put money into a solo 401k.

Thanks for the reminder! I hope I could one day earn enough to put away the maximum there :)

I'm so grateful to have embraced this way of life awhile back so that this isn't the terrifying crisis it could have been.

[Noodle]

It sounds like you have your financial house in order! One suggestion--if you have any routine medical care that needs done, you might want to take care of that before you change insurance providers since your current doctors may not take whatever the new insurance is. Looking for new doctors is a hassle!

The other thing I can say, having been through one layoff and one severe reduction of hours...I really wish now that I had used that time between jobs more effectively, to do some cheap travel (couch-surfing), hard-core volunteering or other projects. Of course if you are going the consulting route you may have plenty to occupy your time right away. But I wish I had done more with the breaks than just job-hunt.

[reginna]

kmm, sounds like you are in good place financially and mentally. You will be fine and do very well. Look forward to following your voyage!!

[kmm]

Hello folks, I wanted to give a quick update here. I've been networking like crazy for the last month and the consulting business is looking good - I'm meeting soon with a potential client who wants to put me on a year-long retainer for one day per week. That income would cover my basic expenses, so I shouldn't have to draw on my emergency fund or severance in a big way. If I can develop one more similar deal (or do equivalent project work), I'd have enough coming in for extras, fun stuff, and a little saving/investing. Nobody IRL can believe this, in part because they don't realize how low my monthly expenses are.  But you guys get it :)

I have front-loaded my 401K to put 50% of my remaining checks in there. That won't get me to the yearly limit but seemed like a good balance between maximizing investments and keeping some additional cash on hand.

I sadly lose my work-covered cell phone plan but will be joining a family plan for $45/month, so not too bad. I'm hoping work will let me keep my current phone but if not, I have an older phone they replaced that I could use.

I've researched my health insurance options and am leaning toward a silver plan that will allow me to stay with DC's current doctor (not my own, but I don't care too much about that). The bronze plans were tempting with their low monthly fees, but as a parent I don't love the idea of having to meet the deductible before every prescription or doctor's visit beyond the annual checkup starts being covered. The difference is $67/month, so seemed worth the peace of mind. I will add a basic adult/child dental plan too.

Next step is looking into setting up an HSA when my current work officially ends. My plan is to take some of my severance and put the maximum into the HSA since the tax savings are so amazing. I might keep the deductible (which will be around 4K) in a money market and invest the rest in a blended fund. Not sure if I'm being too conservative there, any thoughts? Or other experience with HSAs?