While you may have fantasised about how you would spend lotto winnings if your numbers ever came up, but you probably haven’t given much thought to how you might spend, or invest a redundancy payout if you were given the golden handshake. This term is sometimes used when a position is no longer required by a company and the employee is to receive sizeable severance pay.
Now, if you are like me, and you enjoy what you do, such news isn’t going to make your day, even if the payout is a pretty sum. News that you are being made redundant may actually hit hard. And, if this were you, what you may have to deal with at the time would amount to more than just what to do with the money you receive. But if you don’t love your job, or had been thinking about a change, the news may actually be welcome and give you the motivation to make your next career move.
You walk out the door, then what?
Perhaps not on the very day you are made redundant, but depending on how much money you are to receive, you may need to act quickly to find another job.
Although, if you have the ability to generate an additional income stream, the urgency to find another job may not be great. I remember receiving a call from one of our past Diploma of Share Trading and Investment students who was made redundant and received a sizeable payout. This person had set a goal to retire from full time work within the next 12 months and trade for a living. The redundancy simply brought plans forward.
So, if you are made redundant, or you want to assist someone who has, you may find the following points useful:
1. Know your rights
Understand why you were made redundant and how much you are owed – you ought to receive notification in writing from your ex-employer, including details of your entitlements. You can also do some research on the Fair Work website to confirm that your redundancy is legitimate.
2. Consider your expenses for the coming months
Not everyone is in a position to retire after they have been made redundant. Some of us have loans, which means there is interest to pay your bank, not to mention bills you may have to find the money for.
So work out what your expenses are likely to be in the months ahead, you may need every cent of your redundancy to cover expenses, and be aware how the money could dry up quicker than you might think. Setting up a budget and using a budget calculator like the one on the Money Smart website is a good place to start.
Also, you may be able to contact the provider of the services you use and request a little more time to pay.
3. Know what you have
Determine how much money you have, both from the redundancy and in savings, or any liquid assets you may have access to, such as shares that could be sold if need be. Now I’m not suggesting that you sell your shares to fund a holiday between jobs, which some people choose to do. And, if you can avoid selling investments to pay your expenses this is wise, however these assets could be there as a last resort if you find yourself in financial strife and it takes longer than you expect to find another job.
Prepare yourself well to find another job. Decide on the type of job you want and do your research. This would include looking up vacancies online through sources like SEEK, and possibly putting your name down with reputable agencies that can help you find work. And, get your resume/CV updated.
If you are looking to change careers, investigate what sort of training you might need. Consider contacting Centrelink to see whether they may be able to assist you. Be aware that there are many courses covered under FEE HELP, or VET FEE HELP, which means that you can get a loan to do the courses and are not required to pay the money back until you earn above a certain amount. You can learn about VET FEE HELP here.
6. Break wise
Some people choose to take a holiday to create a break between jobs, however, this may be a luxury rather than something that you can easily afford, so a better strategy may be to find your next job first and negotiate with your new employer on the start date, leaving you a break in-between.
7. Park the money
If you have worked out the above you know how much money you need readily available, and whatever is left you may choose to place into a term deposit. However, term deposit rates are very low and typically for 30 days you may receive only around 2.2 per cent.
Also, be aware that the banks now require depositors to provide 30 days’ written notice in advance of a withdrawal, and if you take the money before the term is up you are probably going to forego the interest you earned, so you need to keep an eye on the maturity dates of any deposits and understand what is required.
Further, you may find that some banks offer a slightly higher rate for accounts that are at call, but you need to understand these well as there are conditions, such as minimum balances and ongoing deposits.
8. Don’t forget tax
Taxation of redundancy/termination payments is an important area to understand. There may be certain conditions you need to be aware of. One reliable resource is the Australian Taxation Office (ATO) website.
If your redundancy is classed as a genuine redundancy then there will be some tax exemptions. Whereas, a non-genuine redundancy will be taxed under the normal rates. Refer to the this guide to understand the definition of a non- genuine redundancy/termination.