Provided by Mercer: 18/5/09
While redundancies are less of a surprise in the midst of an economic crisis and widespread corporate downsizing, it can still come as a shock if it happens to you.
If it does happen to you, there are suddenly many things to take into account, usually within an urgent timeframe:
- There’s the reality of not having a job and the need to start the job-hunting process.
- There’s also the need to work out what you’re going to live off whilst you’re without work.
- And, finally, what you’re going to do with any redundancy payout you may receive.
No hard and fast rules
There are no hard and fast rules about how to manage financially if you’re made redundant, and the “best thing to do” often comes down to your own personal circumstances. This usually involves considering the size of your payout and its tax treatment, how long you think it may take to find another job and whether you have alternate sources of income or someone else (such as a spouse, partner or relative) who can support you for as long as you need.
Here we look at how you might factor your redundancy payout into your planning for the period during which you are unemployed.
Often, the decision about what to do with a redundancy payout may be a trade off between two specific aspects of your finances: eliminating your existing debts or budgeting to survive a period without a regular income from an employer.
Can you afford to use your redundancy payment to reduce your debt?
It may seem a logical and obvious move to take a lump sum like a redundancy payment and use it to pay off your debts, such as your mortgage, credit card or car loan.
However, if you don’t have an alternate source of income, you may need to rely on your payout providing for your living expenses until you find another job. Alternate sources of income can come from investments you may have, such as investment properties or shares from which you’re earning an income, or from a spouse, partner or relative.
Can you wait for Centrelink to help you out?
Centrelink cannot be relied upon as an immediate source of income, even if it’s only for a short period between jobs. In deciding whether to provide you with an income support payment after you’ve been made redundant, Centrelink will calculate your “Income Maintenance Period”1. During the Income Maintenance Period you may not be entitled to receive any government benefit. So, for example, if your redundancy payment is $60,000 and you were previously earning $1,500 per week (gross), you will not be eligible for Centrelink benefits for 40 weeks.
What shape’s your household budget in?
Even if you receive a large redundancy payout and have an alternate source of income, there’s always the chance that your household budget may need to be tightened to take account of the reduction in your regular income. It’s important to be really clear about what your expenses are and to determine what expenditure is necessary (for example, bills, food and rent or mortgage payments) and where you can cut back (from something as big as putting off buying a new car or taking a holiday down to the savings that can gained by eating out less and resisting making impulse buys).
Make a plan
In sorting through these issues it becomes obvious that dealing financially (not to say emotionally) with the reality of being made redundant is both complex and firmly rooted in each individual’s personal situation, financial or otherwise. If you have a financial adviser you trust and who knows your financial situation, it may be worth talking to them to make a plan for getting through the period until you get another job. If you’ve never spoken to a financial adviser, now may be the time to engage one so that you can make the most of what may be a difficult situation and establish a strategy to help you navigate through uncertain times.
More information
- To speak with a Mercer financial adviser about your financial plan, call 1800 633 403
- Online budget planning tools may help you get organised
1 centrelink.gov.au
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
