10 ways to weather the financial storm
With nearly 2.5million people unemployed and 3,000 facing the chop every working day, redundancy casts an ever-lengthening shadow on all our lives.
It’s important to remember that being made redundant isn’t the end of the world (although it may feel that way), but inevitably your lifestyle, and especially your finances, will take a hit.
Even so, there are things you can do to help your finances weather the redundancy storm - and here are 10 that have proved to be the most effective:
Find out how much redundancy pay you’ll get
Check your contract of employment to see what you’re entitled to. If you’ve worked for a company for two years you’ll get statutory redundancy pay as a minimum, and up to £30,000 pounds is tax free.
If you’re under 21 you’ll get half a week’s pay for each full year of service, a full week for each year if you’re over 22 and under 41, and one and a half weeks’ pay for every year if you’re over 41.
Many employers will be prepared to pay more if you cooperate with their redundancy plans, plus extra cash in lieu of notice. But make sure you get details of your redundancy package in writing.
Don’t be too proud to accept help and use facilities offered by your former employer. Many firms forced to let staff go are including the services of career management and outplacement advisers in the redundancy package.
Assess your financial position and draw up a budget
It’s vital to get a clear picture of your finances and how hard you’ve been hit by redundancy. Have you any savings that can act as an emergency cash cushion?
Draw up a budget of essential expenditure such as mortgage, energy bills, council tax and food. Experts advise against investing redundancy payouts or using them to pay off part of your mortgage. Instead, keep the money somewhere easily accessible until you see what the immediate future holds.
Says the Insolvency Network: “When they are suddenly made redundant, many people are in shock and don’t keep a cool head. Debt can soon get out of control. Pay something off essential bills on a pro-rata basis. Most organisations would rather you made regular reduced payments for a while than paid nothing.”
Get a P45 tax form from your employer. If you become redundant near the start of the tax year you won’t use up your annual personal allowance, so you should get a refund for every month you don’t work. The refund will be passed back as reduced tax on your salary if you become re-employed quickly. If not, you will have to fill in a tax return and wait for your money until the end of the tax year. The Citizens Advice Bureau’s redundancy experts can advise on rights and benefits.
Check your protection policies
Payment protection insurance is designed to cover repayments on loans, credit cards or a mortgage if you’re unable to pay because of sickness, accident or unemployment. If your claim is successful, payments will normally be covered for 12 months, giving you time to find another job. Some PPI companies have a reputation for rejecting claims, but don’t let that deter you.
Look for financial help
While you pick up the pieces and get your life sorted you might be eligible for Jobseeker’s Allowance, but not if you have savings of £8,000 or a partner who works more than 24 hours a week. Another benefit - Income Support Mortgage Interest - helps to pay the interest on mortgages up to £100,000, but you could have a long wait if you took out a loan after 1995. Your local CAB will provide detailed advice.
Depending on your circumstances, you might also be able to claim housing and council tax benefit - or local housing allowance if you rent from a private landlord.
The government is putting pressure on lenders to treat borrowers fairly when they get into arrears. Speak to your lender before you fall behind. The lender may agree to a temporary ‘payment holiday’. The government Homeowners Mortgage Support Scheme claims to help borrowers who have lost their jobs by allowing them to delay some of their interest payments for up to two years.
Take control of your pension
If you have a company pension, don’t forget about it once you stop working for the company. Affordability may be tricky, but it’s often a good idea to keep up your contributions if you can. If you receive a good redundancy payout, you could think about topping up your pension pot with a lump sum.
Resist the temptation to leap at the first job or business opportunity that comes along. Redundancy can be a chance to step back and reflect what you really want to do.
Be flexible. Carry out a personal audit of your skills. Then you can see how they may apply to other types of businesses or sectors. Ask yourself where you want to be when the economy starts to boom again.
If you plan to go it alone
A priority is to register as self-employed with HM Revenue & Customs - you can be heavily fined if you don’t. It will then arrange for class two National Insurance payments to be made.
Take as much advice as you can - from local Business Link advisers, Enterprise Agency counsellors, bank small business advisers and independent consultants.
Jump at the chance to get more qualifications
Management and entrepreneurship courses have grown by 500 per cent in the past four years. For instance, over half the UK’s colleges and universities now teach entrepreneurship.
An increasing number of universities are running special courses for redundancy victims who are anxious to equip themselves for a new start in their own business.
If there’s money available for a new start - go for it. Currently there’s around £20billion pounds in loans, grants and aid available to help redundancy victims turn their dreams into reality. At the last count there were over 1,500 sources of money available to UK redundancy start-ups, ranging from EC grants to the Prince’s Trust. Most grants are offered through intermediaries such as local government offices or regional development agencies.
There are also massive grants available through the EC. For instance, the European Social Fund has nearly £1.7billion available to assist all types of UK businesses. You can find out what’s available by visiting the J4b website, which has details of over 1,000 grant and loan schemes for small businesses.
Try temping to tide you over
It’s no longer just for people in support roles, but something that professionals take on to give them an idea of what is available. Short-term contracts are good experience. You can make valuable contacts that can help maintain your confidence and motivation.
Don’t lose heart
Experts say that with the right attitude and good advice redundancy need not be a disaster. Five out of ten people lose their jobs at some time in their working lives and most find something new within six months - often better than their previous employment.
“Believe in yourself. If you don’t, no one else will,” says Tim Coleman, who speaks from experience. Made redundant in 1998, it took him over a year to get backing for an executive car hire company.
Today the business has 300 cars and employs Coleman’s former boss. “I knew I could do it,” Coleman says. “After that, it was just the small matter of convincing everyone else.”