Of all the areas in our lives, career is one of the biggest components. As our economy changes, technology and the digital era are rapidly changing the way we work. It’s fair to say that most of us expect to have a number of jobs and/or careers during our working lives. If anything, this is only going to increase as disruption causes more change.
It’s not surprising that many of us will face redundancy in our lifetime, whether it is a forced or voluntary one. It can cause quite a shock at the time and lead to a major upheaval in your life. Redundancy used to have a fairly large stigma attached to it, however, that has changed in the last 10-15 years, as competition and margin squeeze combined with the changing business environment, have seen companies make drastic changes to their structure.
So, whether it’s welcome news or a complete shock, redundancy leaves you with some big decisions to make.
Think about your options
While it’s different for everyone, in most cases, being made redundant means that you will receive a sum of money from your current employer. It’s this money that can be the start of the financial challenges that we see, one of the most common being the urge to ‘splurge’ on an expensive item.
This can take many forms, for example, a luxury car, a pricey holiday overseas, or an expensive present. Depending on whether you’ve seen the redundancy as a positive or negative, the itch to spend that cash quickly and reward yourself can cause you problems. I’m not saying you shouldn’t reward yourself at all, but just consider the longer-term impacts.
This highlights another challenge: Seeing the redundancy as a bonus rather than an income. While there are tax breaks provided for those receiving a redundancy, the fact of the matter is that if you do find yourself in this situation, you may not walk into another job immediately or may need time to think about your next move.
The decisions you make can also be affected by how you view the redundancy. Whether it is a positive and perhaps a reason to celebrate, or a real negative that you need to come to terms with, it is an emotionally charged time.. This highlights the need to think clearly and look at all your options before making a decision.
Steps to making it work for you
For me, there are a few key steps you can take to make sure you maximise your redundancy.
As soon as you know what’s happening, start planning
This might sound pretty straight forward, but it’s the most important step of all. Financially, your employer will give you a statement including an estimate of the amount you’ll receive and the tax you’ll pay. This might seem like the final sum but there are some steps you can take to maximise this amount. For example, if you can, talk to your employer about when the redundancy will take effect. If it’s due in June, then there’s a potential that, combined with the wages you’ve already received, you could find yourself in a worse tax position. Having the conversation with your employer to push this to the next financial year can give you a better financial position. Obviously this may not be possible (your employer will have their own reasons for the redundancy and timing could be a part of that), but it’s worth asking the question.
Also, think about your own financial situation. Before making any rash financial decisions, stop and think clearly about your next move.
Look at options for the redundancy payment
Next, think about all the options you have for the money you’re receiving. The first port of call for many is superannuation and, being a low tax investment vehicle, this definitely should be considered. For those of you in a couple, you can look at equalising your partner’s super. Paying off debt sounds boring, but it’s always another winning strategy. You may also decide to invest some of that cash in other ways. Whatever you decide, it can be a life-changing amount of money if you use it wisely.
Think about your future
This goes to the heart of using the money wisely. Many people assume they’ll simply walk into another similar role or start a new career. The reality is that it may not be as easy as you think, for a variety of factors. You may need this money to pay for everyday items such as your mortgage, car loan, household bills etc., at least in the short term.
Most employers will provide services to help you transition through this period For a period of time, your former employer may cover the cost of support services, such as ouplacement, and for some, this may even extend to financial advice and planning. In my opinion, given these services are free, you should absolutely use them to help you make the right decisions about your future.