Financial Answer Center

Here are some key things to look at as you analyze your cash flow. Remember, we are looking at your current situation, keeping in mind expected changes as a result of your career transition. Don't be concerned with the amount of your other expenses as they exist right now. And don't be alarmed if you end up with a negative cash flow. We'll get into the budgeting process and discuss how you can reduce your expenses in other sections.

Changes in Your Cash Flow Due to Your Transition

Make sure you focus your attention on changes in your cash flow as a result of your career transition. Here are some of the key items to look at:

• Did you adjust your income to recognize severance and unemployment compensation you may be receiving instead of salary?
• Are you entitled to accrued vacation pay?
• Did you adjust your expenses to account for lower taxes you may have due to lower income?
• Did you adjust your expenses to account for job search expenses such as travel, resumes, etc.?
• Did you adjust your expenses to allow for health care or life insurance coverage previously provided by your employer?

What Are Your Biggest Expenses?

Where does your money go? As a general guide, here's a list of expense categories people spend their money on, generally ranked from most expensive to least expensive:

• Housing
• Vehicles and transportation
• Food
• Retirement savings and life insurance
• Health care
• Clothing
• Entertainment

How do you stack up? If you've been spending more on entertainment than you're saving for retirement, you've got a problem. Do you have any extraordinary expenses, such as paying for your child's college education? How will you handle it and what sort of modifications or assistance is necessary? Identify where your money is going, and understand why, so that you can make adjustments as necessary and seek appropriate help as needed.

SUGGESTION: When times get tough, you need to prioritize how you spend your money and who gets paid first. Consider the following list, with number one being the most important priority.

1. Buy adequate food.
2. Make the mortgage or rent payment—you need a place to live, preferably your current home.
3. Gas, electric and telephone bills—before they threaten to shut them off.
4. Unpaid taxes—after a series of warning letters the IRS can begin to seize property.
5. Car loan—so they don't repossess your means of getting to, or looking for, work.
6. Other loans with the house or car as collateral.
7. Debt with furniture or other personal property as collateral.
8. Credit card debt, medical bills, and store credit.

If you are having trouble paying your bills, negotiate a deal with your creditors. Most creditors are willing to work with you while you are out of work. If you're really in a hole and see no way of getting out from under, consider credit counseling before filing for bankruptcy. You can call the Consumer Credit Counseling Service for the office nearest you or visit their website at www.cccsintl.org. For more information on this topic, see the section Methods of Providing Supplemental or Temporary Income.

Cash Flow and Budgeting

During your transition, you will most likely have a limited amount of income. After you pay taxes, what's left goes toward expenses. Simple enough, but maybe you're worrying that you won't have enough income to make it through the month, or that you'll run out of money before starting your next job.

What makes it complicated is all the stuff you have to go through to determine which expenses you have to incur and how much you really have to spend—keeping records, analyzing data, sorting through your own priorities, and negotiating with family members. Besides a lot of thought, it takes time you'd probably much rather spend on other things.

So here's the good news: After examining your financial matters, there's a good chance you'll worry less about the money you'll need during your career transition. Once you get beyond your basic fixed expenses, knowing that you have control over your own spending is one of the best reasons to do your financial planning as soon as possible.

In the prior sections, you examined your financial situation. You completed a basic cash flow and net worth statement. You should now have a pretty good picture of where you stand.

Take a look at the chart you completed in the section Creating a Cash Flow Statement. What does it say about the way you spend your money? Do you notice anything particularly disturbing?

Ask yourself the following important question: How much of what I buy do I really need? Don't get down on yourself. Now is your chance to make things better.