Handling Your Finances After Redundancy
If your job is being made redundant, here are some thoughts on how to look at your finances after redundancy.
Firstly, don’t panic! It might be easier said than done, and you will need time to react to the new situation. However, don’t make any immediate decisions. No matter how well prepared you are – or not – the loss of your income and the uncertainty that can bring can unleash strong emotions related to how you feel about money. When these emotions are strong, they activate the fight or flight response. You may either put almost no energy, time or focus into your money situation. Or, the negative emotions will leave you less able to think, plan and act creatively.
In this emotional state the best you can do is get to know your numbers. Knowledge is power. Talking about numbers might not get you excited. It might even make you feel a bit anxious or scared. However, knowing your numbers is an essential first step to get clarity on your financial situation. It will help you organise and manage your money better. You can then use this information as the basis of a new financial plan.
Know your numbers
If you don’t have a spending plan already then now is the time to prepare one. Look at all your fixed and variable expenses. Are you getting the best deals? Can you reduce costs? What can you cut out for the foreseeable future, until things are more certain? If you are worried that money will be tight, create a 12-week rolling cashflow for the family finances. You should know exactly what will be coming in and going out when.
Separate your money
When you receive your redundancy payment, transfer the money immediately to a separate savings account. Then, transfer it over to your current account as and when you need it. Remember that the bank protection limit is £85,000 in one bank account.
Check your benefits
As part of your redundancy package your employee benefits might continue for a set period of time – they may not. Look at what your employee benefits were and consider if you need to replace them. For example, you might have been relying on your death in service benefits as your only form of life cover, if something were to happen before you find your new job then your family could find themselves not only grieving but suffering from the loss of your income and still with a mortgage to service. If it is important to you that your family is protected, then you might want to consider a life insurance policy.
Check your rates
If you have any debts check what rate of interest you are paying and if possible, switch to products with a better rate. This may be tricky once you have been made redundant but if your partner is still working then this may be possible. If you start to suffer financial problems and you cannot make payments, then contact your creditors and negotiate a lower payment schedule. You might be in a position to use some of your redundancy payment to repay some debts, in that case you will want to repay those with the highest rate of interest first but also check if there are any early repayment penalties.
Use payment protection
Check if you have any insurance policies that might pay you an income or cover some of your payments if you are made redundant. These types of policies are not as popular now but check all your policies and loans, mortgage, credit card agreements to check if you have payment protection and they will make the payments for a period of time.
Apply for benefits
Check what benefits you might be entitled to. There are some benefits and schemes available to some who have suffered financially because of the pandemic and you might be able to take advantage of a mortgage repayment holiday for a few months until the future is more certain.
Taking these steps will give you clarity. They will help you structure your finances after redundancy n a way to help you feel more in control for the foreseeable future, while you decide your next steps. Knowing that you have a financial plan in place will give you the space to focus on what the next chapter will bring and work on any emotional money blocks that might be stopping you from living the life you really want to live.
Lorraine is a financial wellbeing coach and uses a combination of coaching and mentoring skills together with practical advice and information to help clients feel empowered and financially confident. She strongly believes that whether we like it or not, money matters and it affects everything our lifestyle, our relationships, our happiness and most importantly our peace of mind. Lorraine is passionate about helping clients achieve financial wellbeing.
Lorraine has been a professional adviser for more than 20 years firstly as a lawyer and then as a financial planner. She trained as a financial coach and specialises in financial wellbeing as she believes that being “good with money” isn’t enough and working on money mindset and goals as well as money management skills is necessary to create a solid financial foundation, take away stress and make life better. Additionally, she is a Board member of the Initiative for Financial Wellbeing.