Taking the Buyout Plunge
From the relative comfort of one’s sofa – or keyboard – the theory behind parachuting or bungee jumping is pretty straightforward. It is sound, proven, safe, and untold thousands have done it before – most more than once. But theory, and even a live example, takes not just a backseat but a way-backseat when your rear is perched either in the plane’s doorway or on the overpass.
I figure buyouts work pretty much the same way. The theory is straightforward – a company paying employees to go away is never a signal of future job security. So if the dollar amount is attractive enough, why not take the plunge? A quickly secured job will allow you to bank the buyout and you end up in a better financial and probably employment situation. But similar to the action hero examples, this theory begins to back down when it is your career at the ledge’s edge.
And that’s exactly where I found myself on December 22, 2008 – yes, 3 days before Christmas. I imagine I’ll always remember 3 key dates associated with my time with this employer and December 22, 2008 will forever be one of them – the middle one if you’re wondering. For it was on this date that most of our/their North American staff was offered a buyout.
Now buyouts are largely abstract animals until one wonders across your desk. I recently heard an NPR interview with a Wyoming rancher about the endangered species polices likely to be pursued by Obama. He was talking about a particularly fierce wolf that happened to be on the list and he lamented that this animal was abstract to those in New York and Washington responsible for driving such policy, but that to him it was a tangible threat to his way of life. He speculated that the legislators would sing another tune if the wolves were released in Central Park or along the Mall in DC. Me thinks he makes a good point. A buyout offered to an older friend of your parents who has been considering retirement for the last few years is abstract, a furry animal deserving of its place in the wild. A buyout lighting up your email 3 days before Christmas when you’re at an age when retirements is still a lifetime away bares its fangs in a way that gets your attention like few things can.
So what do you do when greeted with such a stark reality? Well, here’s what I did.
In true budget nerd form, I turned straight to my excel spreadsheets. Yes, spreadsheets plural. I have several and one is a set of contingency plan budgets. Within only a few minutes I was able to calculate the after tax buyout value and divide that by my Level 1 contingency plan. Satisfied – or at least not frightened by the result I started to consider the non-monetary implications of staying or leaving this employer and how I thought all this might fit into God’s plan for our lives.
Now, I recognize that I said a lot in that last paragraph. I certainly revealed the depths o f my budget nerdiness and I’ll leave much of that detail for your exploration in my other articles and tools. I also alluded to my religious beliefs and while I’m not ashamed of my faith, it is not the featured intent of this article. What I do want to elaborate on for the balance of this article are 2 ideas – Having a Financial Plan (high level version) and Knowing Why You Work.
Having a Financial Plan (high level version)
In the 7th grade I had a Science teacher – Mr. Rucker – who liked to say that everyone had a price. While I can’t recall exactly how that message applied to a bunch of awkward 13 year olds struggling through Life Sciences, the sentiment was and remains true, we all do have a price. I certainly had a price when considering the buyout but ironic enough that price had less to do with the raw dollar amount being offered than the time those dollars afforded my household. For example – using abstract numbers – a $50k total means one thing to someone maintaining a $10K monthly operating budget (50/10 = 5 months) and it means something altogether different to someone requiring only $5k per month (50/5 = 10 months). While my personal numbers differed from the example, my situation much more reflected the intent of the latter. Therefore, the number that ‘bought’ me was the calendar number or number of months rather than the raw dollar amount. I was secure in my belief and faith that I could land a good opportunity in that timeframe regardless of the economy or unemployment levels.
But my fortunate math result didn’t spring to life on the morning of the Dec 22nd. Rather my wife and I had been chopping away at our denominator for most of the last 2 years – primarily in the format of debt reduction. We had been building our fiscal fitness such that we were in good enough shape to view the buyout as an opportunity for growth rather than a risk of destruction.
I challenge you to assess your denominator and identify ways in which it can be reduced. Start a budget, pay-off debt, pay attention… all hallmarks of financial success. Surf this site and other personal finance blogs to find the messages and approaches that resonate best with you. Sign up for my news letter and look for my tools on this site (either available now or in the near future) to assist you in this process. I am confident that if I can reach a more steady ground then so can you!
Knowing Why You Work
There are obvious reasons we work. Taking a very Maslow-ian approach, we work to provide food and shelter for ourselves and our families. This explains why we need to work, as well as, where we need to start to defend ourselves when funds run tight. I start here not because it’s an obvious starting point but because it is so obvious that it is sometimes overlooked. And I’ll play this pretty close to that concept for the purposes of this article.
All things considered, there are generally two types of buyouts and your approach to the why-you-work question will depend on the type of buyout you’re facing. Plainly said, one buyout looks and feels more like a layoff while the other feels more like a payout. From our previous topic, we know that the dollar amount has less to do with this determination than our level of preparedness when life decides to happen to us.
Not so coincidently it is this level of preparedness that will dictate our ability to address our higher level of needs which, according to Maslow, ultimately leads to personal fulfillment – which is what we’re all really after at the end of the day.
Obviously, the ultimate decision to accept or not accept a buyout will be influenced by the dollars and the runway they enable but the decision, either way, should not be wholly informed by this factor. While I do not have a color-by-number formula for you to invoke, let’s look together at some of these other key variables. If you have an absolute love or hate for your job then this should strongly influence your decision. If you know actual layoffs are forthcoming and your department is in the crosshairs then taking the parting gift may be the better answer. If you’ve already been considering a job change (for any number of reasons) and the buyout is reasonably attractive – I’d plant myself in this middle ground – then perhaps the situation is just the catalyst you need to make a change.
The key – when the dollars afford such freedom – is to explore what it is that you really want to do. There’s a part of me that has always wanted to be a writer and basic personal finance is one of the topics around which I have an active interest. So here I am. I’m not saying that I expect this to pay the bills, rather I have some time to scratch an itch. I imagine if I can turn some of this downtime into an up and running blog then I’ll be able to maintain it as a creative outlet on the side when I’m back working full time. Perhaps my next job will be my dream job, but perhaps it won’t – having the freedom to invest now into this form of expression will take me closer to a place of personal fulfillment – or so I hope – regardless of my place of employment and if in the process I make some new friends or help some folks then all the better.
So why do we work? Well, once we’re above the basic necessities of life I think the answer will vary for everyone and the advice and direction required to achieve those objectives are as unique as the individuals themselves. In the end, I think we each have a responsibility to work, to contribute, and I believe that each of us does have a talent to share. Finding that talent will be easier for some than others but allowing ourselves the freedom for that exploration is certainly something we can control. And while the initial loss of control comes gradually – even willfully (car payments and credit card debt) – the subsequent reacquisition of control (elimination of debt) requires diligence and effort.
So again, I challenge you to prepare. Free yourselves from the shackles of debt and external controls so you’ll be able to hear the opportunity when it calls.