If you’ve been made redundant, your lump-sum payout might feel like a windfall, but the fact is you still have financial obligations to meet, and you’re going to need to work out how to make your money last as long as you need it to.
Of course, even a sizeable redundancy payout will only last so long before you’ve got to return to some form of paid employment. Bear in mind that by the time you take out mortgage or rent payments, school fees and other living costs, that lump sum can dwindle quickly.
Managing a redundancy payment carefully is particularly important right now given the impact the COVID-19 pandemic and lockdown has had on the jobs market and the economy.
To ensure you maintain your financial stability through a period of unemployment, here are some things to consider.
Yvonne Chu, Head of Technical Services at Australian Unity, says the first step is to be 100 percent sure that you’ve received the redundancy payment you’re entitled to.
“If you’re covered by a redundancy agreement, check the terms, which will include specific information about how much you can expect to receive and other entitlements you haven’t used, such as holiday leave,” Yvonne says.
The amount of redundancy payment employees receive is usually based on continuous years of service. This refers to the length of time you’ve been employed.
“If you’ve already received your redundancy payment, check the calculation breakdown that your employer should have provided with your final payslip to see what was paid to you,” Yvonne says.
If you’ve been made redundant, you may be able to access government support. Services Australia has information on what to do and where to start if you’ve lost your job.
If you’ve been made redundant due to COVID-19, check with the ATO for information on payments you may be eligible to receive in these circumstances.
Also check to see if you are eligible for any payments from Centrelink while you’re searching for a new job. The JobSeeker payment offers financial assistance for those looking for work.
One last point: there are rules around the way redundancies are taxed, which is worth bearing in mind at tax time, particularly if you find a job quickly.
Some risk insurance — whether purchased through an insurer, or accessed through your super fund — may protect you against loss of income as a result of redundancy. Policies and terms vary, but it’s worth giving your provider a call to see if you’re eligible for this protection.
A budget is a great way to make sure your lump sum lasts as long as possible. Creating a budget doesn’t require an accountant or any special software, putting pen to paper yields the same results.
Start by writing down your financial obligations over the coming weeks and months. This action can help you feel in control of your redundancy payment and helps you calculate how long you can be unemployed for.
These costs can start to form a weekly budget, so you can manage your day-to-day spending needs. Put simply, “This is the time to minimise costs and manage your spending habits carefully,” Yvonne says.
She suggests you start by writing down your biggest regular costs, such as mortgage or rent repayments, childcare costs or school fees.
"Next, decide whether you need to cut back in any regular spending areas, and whether you should perhaps put your annual holiday or other big plans on hold until you’re in a better financial position. This doesn’t necessarily mean restricting your lifestyle. It’s about deciding the best financial compromise for your situation,” Yvonne explains.
If you’re finding it hard to pay existing debts such as the mortgage or car loans, make sure you contact your bank or loan provider straight away.
There may be an option to reduce your repayments or take a payment holiday while you’re looking for work. You’ll still incur interest during a payment holiday and this will be added to the balance of your loan. However, this option can reduce the stress of stumping up the cash for repayments and buy you some time until you get back on your feet.
Some funds may allow you to access your superannuation early in certain circumstances. This may be an option if you’re struggling financially but be aware that accessing your super is often considered a last resort, as it will have a big impact on the future growth of your nest egg.
If you’re lucky enough to land a new job more quickly than expected, don’t be tempted to blow what’s left of your redundancy payout. This is a great opportunity to put an extra lump sum payment on your mortgage, or in your super fund.
Another option is to put your redundancy towards an emergency fund. An emergency fund typically covers three to six months of expenses, and it’s there to help cover urgent and unexpected costs, such as car or home repairs or a medical bill.
The benefit of an emergency fund is greater peace of mind as you head into your new role, protecting you against future redundancy or other unexpected situations, such as illness.
A redundancy can knock your confidence, both professionally and financially, but for many people it can also be a blessing in disguise.
“While people often see redundancy as the final chapter in that career, the fact is that redundancy can often be a positive turning point that can lead to a career change and exciting new opportunities,” Yvonne says.
The key? If you’re made redundant from your role, keep your finances on track so you have the time and space to look for that great new opportunity.