Many people will lose their job at one point – or even several points – in their lives.
Whether your redundancy comes as a complete shock or you have some warning, it can be extremely confronting and can leave you wondering what to do next.While it’s hard to plan for the unexpected, there are some steps you can take while you are in a secure role to help ensure you can still pay your bills.
“You can't really prepare for redundancy unless you see it coming. But setting up savings accounts so you have a buffer in the event you do lose your job will really help you to survive this period,” says Vikki Manuel, Senior Financial Adviser at Australian Unity.
Having a special fund set aside that you can draw on if you are made redundant is a great safety net. Katie, 38, has been made redundant twice in the last five years, and now has a “nest egg” fund in case it happens again.
“I’m not expecting to be made redundant anytime soon, but I find it really reassuring to know I’ve got breathing space in case anything happens,” says Katie.
The idea is to save up three to six months’ worth of daily expenses in this account. While that number can seem daunting, Katie was able to make it work by putting most of her fortnightly savings in her “nest egg” account, while still saving a smaller amount in an everyday savings account that she could use for smaller expenses and lifestyle goals.
To make the most of your emergency fund, open an account that pays bonus interest if you don’t touch the money for a period. Alternatively, if you think you’re likely to dip into your funds, choose an account that requires 24-hours’ notice to access the money.
A redraw facility or offset account sits alongside your mortgage, and helps you save on your home loan – which, of course, can help to reduce your costs over the long run.
While an offset account functions like an everyday transaction account, a redraw facility holds additional repayments you’ve made above the required minimum amount. While they are slightly different, they both work to reduce the interest you pay on your loan, and can be a great place to store extra savings you can use if times get tough.
For Katie, her offset account is where she stores her nest egg. “Not only am I building a buffer, but I’m also able to pay down the principal on my home loan more quickly – which means I hopefully can own my home sooner. That means there’s one less thing to worry about if I’m made redundant again.”
Our tip? Set up a direct debit into this account that happens every time you get paid so you don’t miss the extra money.
If your organisation indicates it will be embarking on a series of redundancies, it may be appropriate to redirect any money you normally add to your investments into a savings account you can more readily access.
If you are made redundant, you may be able to draw on any investments you do have and sell them to give you some cash if the need arises.
Some insurers offer redundancy cover as part of their income-protection insurance, either as a standard inclusion or extra cover; it’s rare, however, for this to be offered as a standalone policy. If you do have income protection, it’s worth checking whether you’re covered for redundancy, so you can incorporate this into your planning.
While most income protection policies require you to be employed for at least six months before making a claim, if you’re planning longer-term you may want to talk to a financial adviser to see if this is a worthwhile option.
It’s a really good idea to maintain your skills while you are still in a job, as this will help to smooth the path into another position.
Take advantage of any opportunities to do training when you are in a role and look for ways you can demonstrate your value to the business – this helps new employers to understand the impact you had in your previous role.
Networking is also key. Build your contacts with appropriate people inside and outside the business you work for, so you have connections to draw on when looking for a new role.
Whether you think that a redundancy is around the corner or you’re contingency planning over the longer term, speaking to a financial adviser can be a smart choice. They’ll work with you to review your current financial situation and help you put a plan in place to boost your financial stability – so you can feel confident that you can weather any shocks.
If you’ve lost your job, there are plenty of steps you can take to reduce the financial impact on you and your family, including putting together a new budget, reducing your mortgage repayments and identifying relevant government assistance. To help, we’ve put together some information on how to keep your finances on track after a redundancy, and how to make the most of your redundancy payment.
We often like to hope for the best, and this means it can be uncomfortable to plan for something like redundancy. But by getting on the front foot now, you’ll be in a much better position if the unexpected were to happen – which means you can put your energy into planning your new future.