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Does Your Paycheck Have an Expiration Date?

Posted on | June 2, 2009 |

Carl Clay has a paycheck with an expiration date.

Carl Clay has a paycheck with an expiration date.

Meet Carl Clay,  a former medical director for a pharmaceutical communications firm. He lost his job in December of 2008 and it took him about 2-3 months to find a new job. The problem is that his new job is a temporary contract - 10 months, to be exact.

Money Magazine profiles Mr Clay in its May issue. In the profile, Clay talks about how thankful he is to have the job, but how difficult it is budgeting while knowing that it will come to an end. Which leads to my question: Does Your Paycheck Have an Expiration Date?

As a former U. S. vice presidential candidate might say, You betcha!

If we were to extrapolate far enough, we could say that just about everyone’s paycheck does indeed have an expiration date. After all, most of us will retire and some time and live the remainder of our lives off of some combination of savings, social security and pension.

This is only more true in the modern worker’s life. The average person entering the workforce today will change careers 7 times over his working life. That’s a lot of paychecks expiring.

Of course, those are cases where we end our collection of paychecks voluntarily. What about involuntary unemployment?

Job loss happens. Maybe it’s just you, maybe it’s a portion of the company’s workforce being downsized or maybe the entire company is going out of business. These things can still be planned for. Just because you can’t choose the time it might happen to you, doesn’t mean you can’t plan for it happening to you some day.

Here are some things to consider, when planning for an unexpected expiration of your paycheck:

Emergency savings.

Plan on living off this fund for 6 months or more, and you’re off to a solid start. Read more about How and Why to Start an Emergency Fund from J. D. at Get Rich Slowly.

IRA instead of a 401(k).

Many people who switch careers, often leave behind a large amount of 401(k) accounts at old employers. This creates a money management nightmare and lessons the effect of compound interest and concentration of growth. I prefer IRAs because they stick to the employee, not the employer. An IRA account exists outside any given employer, so you always have it working for you and never have to roll it over when you move on. The only real reason to favor a 401(k) over an IRA is the company match, but many companies are eliminating this so it may not even be an option anyway.

If the thought of picking a few investments out of the entire universe of the stock market (as opposed to a few offered in a 401(k) plan) seems daunting to you, keep it simple with a super boring, but super simple investment portfolio.

Stay ready for action.

Keep your job skills relevant. Chance are if you’re laid off, you won’t be alone and with extra competition for jobs you don’t want to stand out with last year’s skills.

Keep your resume polished.
No one is going to know about your cutting edge skills if you don’t have a professional, and unique resume to tell them. Here’s a post chock full of resume tips and examples from Squawkfox.

Be ready for a loss.

To prepare in advance for a layoff, live within your means. Steve wrote at MoneyNing about how he and his wife prepared for a 50% pay cut.  This was because his wife was leaving the workforce to raise a child, but the concept is the same as preparing for any lost income.

Finally, FrugalDad was kind enough to share some thoughts on How To Survive A Layoff.

Loss of a job isn’t pleasant but it needn’t be disastrous. With some hard work and preparation, you can survive just about anything life throws your way, the key is being ready. Why not start today and you won’t have to worry (as much) about your paycheck expiring!

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