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Have you recently lost your job and got a payoff? Did you just decide to retire ahead of time in exchange for severance or a compensation package? Whatever you decide to do with this money you are paid can make or mar you in the next few months. Through the experiences of people who have squandered their severance money and those who made very good use of it, we provide you a step by step guide of how and what to do when you get a huge pay off.

Do Not Tell Anyone – This is the hardest of all the rules and I doubt if anyone ever keeps them. However, the lesson here is that the lesser people you tell the easier it is for to achieve the goals I have listed below. Human beings have a way of convincing each other to part away with cash. It could be for compassionate reasons or new businesses, in fact reasons abound and I need not enumerate further.

Do Not Go into Partnership – It is not unexpected that you receive a flurry of request for partnership for new businesses when you receive a windfall. Even if they don’t approach you, it is typical that you do the approaching. Suddenly you feel like you have arrived and now ready to conquer. Partnerships hardly work and as a friend explains, it is the only Ship that hardly sails. Now is not the time to go into Partnerships.

Ignore pressures to donate to churches etc. – A recently sacked employee told me he planned to donate 10% of his disengagement benefits to his local Church. Well while that is a beautiful thought, I think it is the wrong thing to do. The Church is there to help you at this moment and not take from you considering you face an uncertain future. Ironically the Federal Government does not severance because they know finding a new source of income in Nigeria can be hard. You can continue to give your offerings but please no more than that.

Emergency Fund – Put aside an equivalent of your most recent 3- 6 month’s salary depending on how much your payoff is. If it is more than twice your annual salary, then put away your most recent Full Year salary. If it is less than that but more than your annual salary, then put aside your six months’ salary.

Reason: By putting away a significant portion of your severance away, you are sure of paying your important bills and putting food on the table while you search for a regular source of income.

Note: Your emergency fund should remain the same even after you get a job. Make it a habit.

Put some money away in your Pension Fund account – Now you have between 75% to 50% of your payoff left assuming you have no debt. For ease of understanding I will assume 50% is what is left. The next thing you do is to add another 10% of your payoff to a Pension Fund that you have always contributed to. Employees in Nigeria are expected to contribute 7.5% of your Basic Housing and Salary in a Pension fund. The amount is also matched by your Employers.

Reason: Basic, Housing & Transport Allowance typically make up 60% of Staff Salaries in Nigeria. Since employees and employers contribute 8% and 10% respectively (that is 18% in total) Pension contribution is therefore about 10% of your salary every month or per annum. Therefore, by keeping aside 10% of your Annual Salary you have at least saved your full year’s pension contribution (yours plus that contributed by your former employer).

Note: Contribute 10% of your annual salary if your payoff is at least up to your Annual Salary. If it is less, then you keep aside between 1% to 5% depending on how much you have received. For people who are over 50 and above or have attained retirement age statutorily or by choice you do not need to put this money aside because you will already be entitled to some of your pension contributions.

Pay your debt – Debts are bad and could be a clog in the wheel of progress. You should make efforts here to pay off lingering debts. If you cannot pay all your debts, then make sure you pay off debts that might stop you from getting a service you can’t d0 without or those that come with severe penalties or cost.

Save & Invest – You are now left with about 40% of your severance assuming you have no debt. It is likely that at this point starting out a business might seem enticing. That is understandable and I reckon with that. However, people often forget the risk involved and don’t even bother to carry out proper feasibility on the business. Make sure you carry out a good feasibility by understanding the risk in the business, the value chain, market, challenges, competition etc. If you feel business is not the way, then you can consider investing. However, avoid ponzi schemes as they can be highly risky.

Government Securities – Invest the balance 40% of the money in Treasury Bills or FGN Bonds. These money instruments pay a handsome 12-14% interest per annum. They are also very safe and guaranteed by the government. The fact that Banks, Pension funds and others that we consider investment gurus prefer them to even stock helps buttresses the argument.

NEVER GIVE YOUR PAYOFFS TO PEOPLE WHO DON’T GIVE YOU 99% GUARANTY THAT YOUR MONEY WILL RETURN AS IS. You can invest in stocks, mutual funds, fixed deposits with any other source of income.

Real Estate – Invest in Income Yielding Real Estate – If the balance 40% is huge enough to buy you a real estate property without needing to borrow then I will suggest you buy it provided it is one that earns you rental income. I had a friend who once spent N15million out of a N50million windfall he received building a mansion in his village. When he went broke the mansion ended up the most difficult thing to sell. No one was interested in buying it even for N1million.

Yourself – It is also good to invest in your dreams and desires provided you have the courage and thoroughly conducted a proper feasibility survey. I would suggest that you do not spend more than 20% of whatever is left to start a business. If the business cost more, then you are probably not ready for it in terms of funding. You should concentrate more on getting your funding in place rather than starting out a business without the necessary funding required to start. The 20% should be enough for you to at least start without borrowing from anyone.

Look for a Job – For those who are not looking to start a business anytime soon now is no time to rest. Be aggressive and look for a job as quickly as you can. This is also no time to be selective. Take the job that fits your minimum requirement and move on. You will need that extra income soon enough.

Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.


  1. I just read this and it is so apt. Most of this I did when I lost my job. I still have more than 90% of the pay-off invested in treasury bills. The other 10% kept me liquid until I secured another job. Good write up.

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