Money money money … #redundancy

Redundancy and money

Yes, redundancy and money – two big words that make an impact.

For most, the main anxiety about redundancy is the simple question ‘What I am going to do for money.’ A redundancy payment is intended to be a financial cushion between jobs but as the period becomes more extended and payments less generous, payments are quickly eaten up.

Money money money

Some people prepare contingency plans in advance of possible redundancy. At this time is is vital to involve your partner, and it can be very helpful to include others close to us (older children, parents etc) in the discussions. This must be a team exercise; everyone will have ideas, everyone will make offers of help, and everyone’s co-operation will be needed to make your plans work. If you have not done this in advance, you will need to make a full appraisal  of your financial position as soon as you learn about the impending redundancy.

Money in and money out

It’s very useful to consider each element of expenditure, income and capital in detail, and consider what action you can take in each area to make the best use of your redundancy pay-out and to ensure that you manage your finances as best you can during the challenging situation.

Now I don’t profess to being a Financial Advisor - however, having worked with in excess of 500 clients, I recognise that there is a common theme about what has to considered and how easy it is to ‘forget’ sources of income and expenditure.

The money side to redundancy and the challenge of finding a new job go hand in hand.

Things to think about

Here’s a checklist to download : money redundancy

You’ll see that there’s a fair amount of scope for reducing some expenditure and for eliminating others. You should also carefully consider the best way to pay overheads, and check that your direct debits are up-to-date and that you have the best options on standing orders vs cash payments.

The challenge is that whilst redundancy can be considered an opportunity, when it comes to money it might be a big worry. It’s imperative that you grasp the mettle and budget accordingly.

Don’t forget that a  job search can cost money, so how can you effectively job search without spending too much? Social media might well be the answer – but that’s another blog.

Money Action Points: Expenditure

It is amazing how cheaply it is possible to live for those who are prepared to accept a life-style based on reality rather than habit. If you, together with your family, are able to face the situation, you may find your prospects of financial survival are revolutionised. Many managers have been able to reduce their total outgoings by 50% or more.

It will certainly be possible to eliminate or at least reduce almost every item of expenditure. These have been indicated in the download checklist. Each item will need the most stringent examination.

It is essential to make full economies right from the start, rather than to wait for financial pressures to build up.

It may be sensible to use some or all of any newly available capital to pay off any residual mortgage. This is especially likely if the loan is small by present standards, or if the term of the mortgage is near its end. However, it is not always the best move. Mortgage interest up to the maximum level will remain claimable against income tax liability. The lender may temporarily agree to suspend payments, ask you to continue paying the interest whilst postponing repayments, or convert the mortgage into a cheaper option. If you are entitled to Income Support, you may be eligible for payments to cover the interest on the loan, which are not in excess of £150,000. There may be a policy, which protects you against redundancy. You should contact the lender as soon as possible to explore the situation fully.

Hire Purchase/Loan companies may be prepared to extend the term of repayment. As with mortgages, you should approach them as soon as possible, rather than wait until you are in difficulty.

The local Council may sometimes be prepared to offer help with Rent and Council Tax.

If you are assessed for a contribution towards your children’s education, you can apply for a re-assessment. If you are paying school fees, a letter to the Head will probably be received with understanding.

The bad news is that the job search may prove to be expensive. Postage, journals and papers, smart clothing and travel to interviews or networking meetings do not come cheap. However, some help is available.

Money Action Points: Income

You must ensure that you are aware of any entitlements, and not let false pride prevent you from claiming them.

Part-time, contract or temporary work, consultancy, or ‘interim management’ posts may be available, especially if you are not sensitive about the level or nature of the work. It may be possible to lecture or write articles; local papers and broadcasting stations are often looking for material. However, any additional income may affect your entitlement to unemployment benefit and possibly result in an overall loss of income.

Money Action Points: Capital

The ideal situation must be to preserve your capital intact, rather than use it as an income substitute. If you have been successful in reducing expenditure and maximising income, this may not prove impossible. Most people have larger capital resources than they realise, and it is  essential to review these carefully.

Options will include selling realisable assets that do not produce income. Some may even incur expenditure (e.g. road tax and insurance for second cars; council tax, insurance and service charges for second or holiday homes etc). The possibility of releasing capital by trading down your house may be worth exploring, especially if you have a larger family house than you now need. Life insurances will need careful examination with the help of the insurer or an independent adviser.

You may decide to use capital to pay off an outstanding mortgage or other debts (but see above). You will certainly wish to maximise the income that can be generated by what remains. You may have capital tied up in accounts that pay interest net of income tax. As your income tax liability may be greatly reduced – even eliminated – you may wish to reinvest elsewhere.

The reorganisation of capital is an important and sometimes difficult area. Rates of return [which are very low at the moment] must be balanced against security, accessibility and tax efficiency. Expert, fully independent advice can be valuable – even essential.  In finding this, beware of any who have a vested interest in the products or services of one organisation and of those, such as banks, that may charge for advice.

What tips would you offer to those that are being made redundant when it comes to money management?

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About Lynn Tulip
Lynn Tulip is a career management and HR professional running her own HR consultancy. Her passion is working with individuals, helping them rekindle their work passion. Read the newly published Get That Job, the art of successful job hunting.. Apart from loving food and fitness, she enjoys her ever growing family. Find her online or follow her @LynnTulip and @A4P_HR
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