Managing the Financial Impacts of Redundancy
“The fear of the unknown”
Financial advice is relevant to almost everyone at many significant stages of life. And that includes the uncertainty after being made redundant.
Financial Advice isn’t necessarily about how much money you have today. It’s about protecting your family & ensuring your financial security.
Everyone has a situation that is unique to them. It could be how to get rid of debt, how to use debt, how to retire early or how to deal with the current uncertainty. At Newcastle Advisors we have an innate ability to solve problems.
During uncertain times, you need to rely on your trusted advisors & our Newcastle Financial Planners are here to support you.
Managing the uncertainty
Things have changed quite rapidly when you are made redundant.
Having a strategy in place can assist when navigating the change to finances, career, family & lifestyle, which is critical in these uncertain times.
There are several key steps that will support you in maintaining financial security in these challenging times.
1. Understand your current position
2. Make a New Budget
3. Review your Loans
4. Government Benefits
5. Insurance
6. Superannuation
7. Review your Financial Plan
8. Review your Estate Plan
9. Mindset
10. IKIGAI
1. UNDERSTAND YOUR CURRENT POSITION - TAKE STOCK
Many businesses, both big & small, from a plethora of industries will start to feel the pinch from the current economic conditions of higher inflation and higher costs of borrowing.
This will put more pressure on businesses to cut costs, which includes reducing staff numbers.
Should you be made redundant – check your payments.
You are leaving, you may have warning, or you may have to leave the building immediately.
At this time your payout should be your major focus.
Make sure you have all your entitlements, check carefully that your payout is correct.
You should also check your contract.
If you don’t have a copy – ask Human Resources (HR) Manager. Check if you have any tax liability on this money and ensure you put it aside for tax time.
In addition, it is important to understand your current financial position.
This will support you in not only building a new budget but understand what assets can be liquidated if required.
*Newcastle Advisors have online software that can support with this, to ensure you do not miss anything.
2. MAKE A NEW BUDGET
With uncertainty you will need to reconsider your budget & look at how long your cash can be stretched out.
Work out a weekly budget – don’t forget your bills, quarterly, six monthly, and annually and make sure you can cover these.
Will your income continue?
Can you earn a supplementary income?
Can you cut any expenses (Now all sports have been cancelled – I am re-evaluating my Kayo Sports Subscription)?
If you can, you will feel more at ease in these new circumstances.
If your income is uncertain or stops, you will need to re-evaluate all your expenses.
Your fixed costs will be hard to cut but you should try & stop unnecessary outgoings.
This also includes talking to your banks/lenders to see if your repayments can be paused or stopped for a period of time.
Not only will this help your financial bottom line, but it also means that you will be less stressed worrying about your money running out.
There is a plethora of budget planners available online.
Newcastle Advisors have one available for our clients, however the Australian Government also have a great spreadsheet which you can download for FREE to ensure you don’t miss anything.
3. REVIEW YOUR LOANS
You may have a home, personal or car loan.
Whatever the case may be, you will need to assess your ability to meet your repayments.
During uncertain times, many are looking to refinance with lower interest rates. However, it has become more difficult over the past 14-16 months with 13 interest rate rises. Especially if your household drops down to one wage, it may be impossible to refinance at the present time.
Furthermore, it is imperative to have a clear mind & consider the bigger picture when making financial decisions during these times. Considering your liquid assets &/or redundancy payout, it may be tempting to put it into your mortgage, but before you do anything, consider your needs. In uncertain times, your money is your income for the foreseeable future, and you will need cashflow to meet your weekly expenses. While putting it into your mortgage might seem like a good idea, losing cashflow may provide stress to your finances later as you may not be eligible for Government benefits straight away (however this has recently changed to exclude liquid assets). By all means put the money in an offset account against your mortgage to reduce the interest you are paying if you have the ability. Just make sure you are able to redraw this money if necessary.
If you have loans and want to know your options, contact us, as we have business partners that specialise in finding the best solution.
4. GOVERNMENT BENEFITS
Newstart/Jobseeker/Unemployed Benefits
This supports Australians who are between 22 - Age Pension age & are looking for work.
The jobseeker allowance has recently been increased from $686 per fortnight.
However, there are varying factors that determine your allowance. Whether you are single, couple, have children or are over the age of 60.
There is also an asset test and income test that applies, which will determine your benefits.
5. INSURANCE
Life insurance is the last thing people want to talk about, but it’s the first thing they check for when a loved one dies. During uncertain times, many are looking to protect themselves & their families.
There are four main types of personal insurance covers;
- Life – provides a lump sum to your family if you are terminally ill or pass
- TPD – Total & Permanent Disablement provides a lump sum to you should you become disabled.
- Trauma – provides a lump sum should you suffer one of sixty trauma events, including cancers, heart attack, & stroke.
- Income Protection – in the event of injury or illness and you can no longer work, this cover will provide a monthly income to you & your family, replacing up to 75% of your monthly income.
We have seen many personal insurance premiums increase significantly in recent years.
While you remain unemployed your income protection policy may not be valid – you need to check what you have & what you are paying for and what is the most appropriate for your specific situation.
Furthermore, many are finding it a difficult time at present with uncertainty around employment and ongoing income. However, you have insurance so its there when you need it the most, if you have made the decision to be insured do not let it expire at this time.
There are options available to ensure your premiums continued to be paid during this time, including using your superannuation monies to pay premiums (where possible).
6. SUPERANNUATION
During uncertain times, it is important to understand your superannuation benefits.
If you received a redundancy payment, this will likely not include any payments to super.
Do you want to contribute anything additionally to super?
Depending on your age and your current situation, you may choose to put some money towards your retirement.
However, you need to be careful with the amount you choose to contribute. Don’t exceed the contribution limits and make sure you are not putting away too much as you may need it to last for some time.
Superannuation can be a complex beast when looking at the contribution rules, taxation rules, underlying investments, insurance policies, income streams and your individual retirement plan. We are specialist in superannuation & retirement planning, we are here to support you and impart our knowledge to find the best solution for your specific circumstances.
7. REVIEW YOUR FINANCIAL PLAN
Think about the big picture during a redundancy.
PART A
Steer clear of making rash decisions at this time but make sure your plans remain in line with your financial goals.
Go through your last financial plan – update your assets, liabilities and income. More importantly during this period where you may find yourself with more time on your hands, sit down with your spouse and review your goals, discuss them, update them, and inform your financial planner of your updated goals and ask how this will affect your financial plan & strategy.
With the ever changing world we live in your financial plan needs to be fluid with the ability to adapt and change.
PART B
If you don’t have a financial plan, start making plans.
Do you know where you are going? Set your GPS
Before you go about setting your GPS, it is important that you know exactly where you are going, even in these uncertain times.
Do you have goals? Do you have a life plan? Do you have a financial plan? Do you have goals for the next 10 years – 3 years – 1 year – 1 month – 1 week?
Your GPS as you get into your car every single day, needs to know two things;
- Where you are now
- Where you are going
This is extremely important, as most people know where they are, but a lot of people are not happy with where they are, they want to be somewhere else. They want to be further along in their goals. But they are not exactly sure on where their destination is.
So as you can see it is extremely hard for your GPS to take you from where you are to where you want to go, if you don’t exactly know where you want to go.
This is important, as if you know your goals, know what you want to get out of the next month, year, 3 years, 10 years, then it makes it a lot easier to make a plan.
As what happens is the GPS finds out where you are, and finds where you want to go, and makes a plan to get you there.
Now there will be de-tours along the way. You are experiencing one of those at the moment with your redundancy.
Sometimes there is something that happens on the path. Whether that is an accident or roadworks going on, your GPS does not cancel the route, or say we are not going as the road is blocked ahead, your GPS re-calculates your route to your destination.
Ask yourself this key question every morning, to support you setting your GPS
“what do I need to do today to get me to my goal X”
Eg. What do I need to do today to get me to my goal of making $100,000 this year.
Write down your plan.
Then ask yourself “what is the most important thing for me to get done today?”
“Is this what I am doing right now, getting me closer or further away from my goals?”
If it is getting you further away from your goals – stop it.
And do something that is going to get you closer to your goals.
For your GPS to work it needs two pieces of information.
- Where you are &
- Where are you going
You do not have to conquer the entire year or all your goals today, but you have to win today. Focus on your plan for today that will get you closer to your goals.
8. REVIEW YOUR ESTATE PLANNING
If you do not have an Enduring Power of Attorney, then it is difficult for anyone else to make important business or financial decisions on your behalf.
An Enduring Power of Attorney is a legal document which you can use to appoint a person to make decisions about your business, property & financial affairs should you lose mental capacity.
In addition, should you or your spouse pass, you need to ensure your Will is up to date and reflects your current wishes. Your Will is a legal document that contains instructions as to what should be done with your money & assets after you pass.
If you are in a business partnership, a buy-sell agreement is essential during these times.
A buy-sell agreement is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business or chooses to leave the business.
It may be thought of as a sort of premarital agreement between business partners or is sometimes called a “business will”.
An insured buy-sell agreement (triggered buyout is funded with life insurance on the participating owners’ lives) is often recommended to ensure that the buy-sell agreement is well funded and to guarantee that there will be money when the buy-sell event is triggered.
We can work with your lawyer or if they are not experienced in this area, we can recommend one of our business partners to ensure your Enduring Power of Attorney, buy-sell agreements & Wills are established in the most professional, effective & efficient manner.
9. Mindset
A redundancy can hit hard & affect you in many ways.
Your health, your ability to move into new employment roles and those around you will all be better off if you can keep positive.
You are not generally planning for a redundancy, so when the news comes through you will be unprepared.
Many are now in the unknown
- the unknown of what this means for you
- the unknown of whether your job is safe
- the unknown of whether you are still on track for your goals, whether that be retirement, buying a home or starting a family
- the unknown of what is next, making those without a plan feel anxious, nervous, stressed, worried, overwhelmed & fearful of what the future holds.
Don’t underestimate the effect that this has on your whole being – including your mental health. This may possibly be one of the most stressful times ever for you & your family, and we recommend you reach out for assistance should you require help to get through this crisis.
Lifeline Australia- 13 11 14
Beyond Blue -1300 224 636
Kids Helpline-1800 551 80
Emergency- 000
Mensline-1300 789 978
A few tips for when you are made redundant;
- Keep structure. Set your alarm, get up and exercise, shower, brush your teeth and get ready for your day like you normally would. Keeping some kind of structure and normality in your day will help you mentality as well as keeping you productive.
- Exercise is also another great tool to support your mental health & wellbeing. Exercise leaves you feeling a lot clearer, gets rid of the brain fog and reduces the symptoms of depression, anxiety and stress, which everyone is going through at the moment.
- Diet – continue to eat fruit & veggies – rice, pasta, pizza bases have all been cleared out of the super markets. However, Australia has a huge agriculture industry, and our fruit and veg is regularly being restocked. Put some good fuel into your body to ensure you are providing enough energy to stay active throughout the day
- Be mindful of what information you are consuming each day.
- Get outdoors – get some sun on your skin – get some fresh air. Being outdoors is also beneficial for your mental health.
- Stay in touch – stay connected with friends & family.
As the saying goes a problem shared is a problem halved.
10. IKIGAI
Ikigai is a Japanese concept that means "a reason for being".
This Japanese concept is about having (of finding) a goal in life, a reason for getting out of bed in the morning. Your 'ikigai' is the point where a number of aspects come together, namely what you love, what you are good at, what the world needs and what you can be paid for.
During uncertain times (a redundancy), many of our clients have used this prism for seeing how to bring satisfaction, happiness & meaning to life.
Contacting Newcastle Advisors
Cut through the noise & contact your Newcastle Financial Planner to discuss how these challenging times affect your financial plan.
The team at Newcastle Advisors are here to support you. Whether you have been made redundant, “stood down” or are self employed and can no longer perform your duties, there are options available.