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Reducing Money Worries Following Redundancy

As if job loss isn't enough of a concern, for many people redundancy also means a plunge into financial uncertainty. As the cost of living increases so does the pressure that many families come under to ‘make ends meet'.

CURRENTLY EMPLOYED - TAKE THESE STEPS NOW?

  • Create an ‘emergency fund' and put some money aside that you could use in the event of job loss. Savings made now could just be what you need to take the financial pressure off until you are able to secure another job. Many financial advisors suggest working towards having enough money in reserve to covers total costs for three months, creating a buffer' that can be used in an emergency.
  • Distribute any savings that you do have across a range of different options so that you can access different funds at different times according to your needs and personal circumstances.
  • If you have a mortgage, discuss with your provider the plans that could be put in place in the event of redundancy. Many lending companies offer schemes that allow for the repayment of a mortgage that is interest only for a specific period of time. There is often a fee charged for any changes made to mortgage payments.

  • Make changes to your existing mortgage by extending the repayment period. This will reduce the monthly payments that you have to make.
  • Choose a flexible mortgage scheme that enables you to increase or decrease your payments based on your personal circumstances at the time.
  • Take out unemployment insurance. To do this you will need to guarantee that there is no potential for redundancy currently and the policy is likely to be only for a specific period of time.
  • Have payment protection insurance to cover mortgage or loan repayments in the event that you are not able to work. However be aware that these type of insurance policies often don't pay out until you have been out of work for a year or more.
  • Whenever you are considering a change to any form of loan or want to take out a new one, always research the interest payments that would be incurred and ‘shop around'.
  • Remove any debts associated with credit cards or other loan schemes that typically charge a high interest rate. If your job is made redundant, you want your debts to be at the absolute minimum.
  • If your job is likely to be made redundancy, work out the severance payments that you are likely to receive, including any superannuation and unused holiday pay entitlements. This is typically indicated in your Contract of Employment. If there is no clause in your contract pertaining to compensation in the event of redundancy, then the likely outcome is that you would be entitled either to no compensation or to an amount that would cover only your period of notice. Often if the company goes into liquidation or receivership, there are little funds available to pay out compensation and in some cases holiday pay is also forfeited.
  • Meet with a financial advisor and develop a savings plan
  • Consider expanding on your skills by taking additional training to update your CV and improve on your job marketability.

LOST YOUR JOB - TAKE THESE STEPS NOW

  • Develop and stay with a realistic budget - know where the cost savings can be made. Check out this FREE BUDGET WORKSHEET
  • In your budget include an amount for unexpected costs
  • If you have a mortgage, visit your loan provider to request a change to repayment options - pay interest only until you secure the next job
  • Don't spend more money than your income and plan any spending that you make. Develop a list of items that you HAVE TO purchase
  • Pay for as many purchases as possible with cash. Limit the use of cheques as the clearance period makes it more difficult to plan for cashflow
  • Keep receipts of all purchases so that you can track your spending each week and manage your budget accordingly
  • Study your bank statements and invoices to identify exactly where your money is being spent
  • Develop a list of annual expenses so you know when peak expense periods occur
  • Try and have at least three months expenses in reserve on the basis of having no income throughout that period
  • Identify your fixed and variable costs and track your expenditure over an entire month so you can see how much you're spending.
  • Limit any discretionary spending and make savings in non essential areas.
  • If you have received a severance payment, pay off any loans that are incurring high interest rates, such as credit cards and loan payments.
  • If you have an overdraft, don't use it as money that you own
  • Organise Internet Banking so that you can track your bank balances and expenditure more easily
  • Don't withdraw cash from an ATM without checking your account balances first
  • If you have received a Lump Sum Severance Payment read the following topic

 

SEVERANCE PAYMENT

A Severance Payment is financial compensation that an employee often receives if they have to exit a job due to redundancy. Severance payments are often subject to strict government regulation.

If the employee is entitled to severance then a severance clause is typically included in the Employment Agreement. If there is no such clause, then the employer is under no obligation to provide severance.

The amount provided can often be substantial as it is typically calculated according to:

  • The number of months and years that the employee has worked for the company
  • Unused vacation time
  • Unused sick leave (although this doesn't apply in every situation)
  • Payment in lieu of working out the required notice period
  • Medical, dental or life insurance payments
  • Retirement and Superannuation benefits
  • Stock and share options

If you have received a substantial severance payment, then the following steps are recommended:

  • Consider the time of the year and identify if there are any taxation implications. Be sure you know the net amount that you will receive
  • Understand the impact that a severance payment may have on existing benefits and income support entitlements
  • Consider not taking the severance payment as one large lump sum payment - think about using it to increase the amount put into any existing retirement plan or request that it be paid out monthly, like a salary
  • Seek advice from a Financial Advisor or Bank Manager and identify the best way to manage the payment. A Financial Advisor or Planner can assist you with investment options so that the money earns an income for you
  • Avoid the temptation to treat the payment as an ‘unexpected windfall' that enables you now to purchase luxury items that you don't need
  • Use the payment to pay off any high interest loans and debts
  • If you intend to use the lump sum to start a small business or to purchase an existing business or franchise, then seek small business management advice first before making any commitments. You need to be sure that you have the relevant skill, experience and aptitude to run your own business