Redundancy unfortunately affects more and more Australians. With the right approach and professional advice, however, it could open up opportunities and work in your favour.
Even though redundancies are often part of business, being told your role is redundant can throw your plans into disarray and leave you feeling blindsided. The key is not to panic.
People often discover that a redundancy can open doors to new financial and lifestyle possibilities.
Threat or opportunity?
While every situation is different, an unexpected redundancy could be turned to your favour. It might not be the timing you wanted but you might even be able to use it to achieve the kind of goals and objectives you’ve been talking about for years.
Understand the payout
A redundancy payout can be complex, with a range of tax implications, so it’s important to make sure you completely understand the payment. Knowing your rights and checking you’re receiving what you’re entitled to is also important.
As soon as possible, obtain a copy of the proposed payout. An accountant or financial adviser can then help you assess the financial implications and options available to you.
If your employer’s flexible, you might be able to use the payout to your financial benefit, for example deferring receipt until the new financial year by taking annual leave in the interim. This could help reduce your tax liability and also boost your super with contributions over your leave period.
Review your options
Before making any financial decisions, take the time to assess your position and get some perspective on the situation.
Meeting your immediate needs
Understanding the size of your redundancy payment, and how long it’s likely to last, will help you determine how quickly you’ll need to find employment. A payment can provide you with the equivalent of six months to a year of salary, so, if you can get another job within that time frame, you could be better off.
You may feel more secure placing your payout into a savings or home loan offset account that you can easily access. It’s also a good idea to review your spending. This is particularly important for smaller payments. Our Budget calculator can help you to review your spending patterns and identify areas for adjustment.
If you’re lucky enough to find a new job quickly, and/or your redundancy payment can cover your living expenses for an extended period of time, you’ll need to decide what to do with what’s left. Some of the options include:
pay down or discharge a loan – e.g. a mortgage or HECS
paying an after-tax super contribution to boost your retirement savings (being mindful of contribution caps)
investing outside super if you’re saving for a more immediate goal.
The best approach will depend on your specific circumstances and financial objectives. We recommend you seek professional advice from a financial adviser.
Embracing the change
Finally, once you’ve had a chance to review your position, a redundancy can lead to new options and ways of thinking. Some people may embrace the freelance life or turn a passion into a career.
By taking your time to understand and evaluate your options, you could turn an unexpected redundancy into an unexpected and very exciting opportunity.