Make More Cents - Redundancy Payments
Thursday, 8 April 2010
Many people have been made redundant or are worried about job security during these tough times. Finance Expert Liam Croke is on hand to answer those difficult questions about redundancy payments.
Liam Croke: Money Expert
Liam has worked in the financial services industry for the past 21 years and seen by many as an expert in the field of personal finance. He is a qualified financial and mortgage advisor.
In the past he has held senior management positions with two well known financial institutions along with one of the "top 5" accountancy practices in Ireland. He currently works for a financial services company based in Limerick.
He is frequently asked to contribute and comment in all areas relating to personal finance on both national and local radio stations. You will have heard him for example recently on RTE's "The Mooney Show" and on Newstalk's "The Right Hook."
Liam was invited to make a presentation to the Joint Oireachtas Committee on Social & Family Affairs on trends and levels of personal debt in Ireland. He made his presentation to the committee on the 24th June 2009.
Liam is author of 4 personal finance books:
. The best selling "The Mortgage Maze Explained" published by Currach Press in 2006.
. The best selling book "Your Money Your Life - Managing your finances in today's Ireland" published in 2007.
. "I'm Broke! A teenagers guide to Money" - Published by Crabtree and distributed in the UK & USA in 2009
. "Stash or Splash" which is being released in Ireland and the UK in September of this year.
. Liam previously wrote a weekly personal finance column for The Sunday World entitled "Mr. Cash - How to Save it, Spend it, Earn it" and has also written articles for the Sunday Business Post, the Evening Echo, the Sunday Independent, the Irish Sun, Prudence Magazine to mention just a few.
.When you have been made redundant the important thing is to think to the future and make smart financial decisions.
To help guide you follow Liam's 4 'Cs'
1. Choose what suits YOU
. Everyone is different so what suits one person will not suit everyone.
. Make the choices that are appropriate to you and your situation.
2. Check your Sources
. Make sure you are getting information from creditable and reliable sources.
. Do not make a decision based on hearsay or biased information.
3. Check the Facts
. Separate fact from opinion
. Double check the information you are given.
4. Choose Confidently
. Do not make rash or emotional decisions - Stay Calm.
. Bad decisions can take years to recover from.
What are the implications of being made redundant?
Your circumstances will change financially in quite a dramatic way as you will be earning considerably less. Your monthly budget will have to change accordingly. Also, you will have to look at other areas of your financial life that may have been organised by your employer, for example your pension and your insurance.
By making smart financial decisions that suit your needs you can make a suitable plan.
What do you do with your lump sum?
Diversify! Many people make the mistake of using all the money for one loan repayment or in one investment when really it is better to explore your options by spreading the money out.
Why should you not pay off a lump sum of your mortgage or loan?
Loan repayment options:
Many people make the mistake of paying a large lump sum of their mortgage or car loan when they receive a redundancy payment.
This might be a good idea but before you do anything you have got to look at what impact this will have on your loan.
Many people go into their bank and lodge €20,000 against their mortgage - a sum they are never going to get back once lodged. It is only after a month or so they realise that the impact it has made on their repayments was not that much at for example €100 per month.
If your repayments have only been decreased by €100 a month and your incomings are considerably less, you may still find it difficult to make these payments.
It may have suited them better to hold onto to their €20,000 in a separate savings account earning 3.6% (more than their mortgage rate). This amount on deposit gives them great comfort knowing they have 2 years worth of mortgage repayments in a separate bank account dedicated solely for their mortgage repayments.
Again explore all options open to you and make an informed decision that is based on your personal circumstances and is best suited to you in the long term.
Renegotiate your loan repayments
If you are having difficulty repaying your loans- speak or have someone on your behalf. Speak to your lenders ASAP and arrange a new repayment schedule that they are happy with and that you can afford to repay each month until you are back working and hopefully earning more.
Moving forward - How to budget your money post redundancy
You need to cover what your income versus expenses each month is after you have left your previous employer. You need to look forensically at your fixed outgoings and look at ways of minimising them as well as looking at your variable expenses and identify areas that you may be spending too much on i.e. insurances and devise a plan that will help reduce these significantly.
There are areas when looking at this each month that you need to prioritise in terms of what can and can't be cut.
In terms of your lump sum, why not diversify and divide it into three different accounts for example. The amounts are down to what suits you.
This money will go on any day to day expenses such as bills, food, gas, electricity...
This account is for loan repayments only and gives you the security of knowing you can make your payments.
Whether this is a risky or long term investment, make sure that you have complete control and knowledge of where the money is going.
The majority of people just go to their own bank and lodge it with them and let the bank dictate where your money goes. Remember this is your money, not the banks and everything we decide is in your best interests and not the banks!
Put a plan in place for you that you are getting the best possible return for your money.
There are many different options and time frames, risky and non-risky investment plans. Get some independent advice and make a decision based on what is best for you and your families' circumstances.
Other Factors to consider - Pension & Insurance
If your employer was dealing with your pension then you will have to set-up a new pension scheme. You have some options:
1. Transfer your pension to a new scheme when you start a new job.
2. Set up your own pension with a PRSA - Personal Retirement Savings Account.
3. Leave your current pension fund alone.
4. Refund your contributions if you have been with a company for less than 2 years.
Your employer may have been taking care of some of your insurance schemes.
Two in particular to be aware of are:
. Death in Service Benefit
. Income Replacement Policy
Death in Service Benefit: This is similar to a life assurance policy. Your employer may pay a lump sum to your family if you pass away. If you do not have life assurance, shop around for a competitive scheme.
Income Replacement Policy: If you were unable to work for an amount of time your employer may pay you a percentage of your salary. When you start working for a new employer see if they can provide you with this scheme.
IMPORTANT: Many people are paying for life, home and protection insurance and have no idea if it is competitive or not. 90% of the time they are paying way too much for cover.
My/your goal is to help you make sound, informed financial decisions in the coming weeks ahead.
You will need support with all elements of your immediate financial planning and as part of this approach, you need an overall, independent review of your existing financial arrangements, plus recommendations on how to protect and improve your situation after you have left your current employer
We/you need to identify the most important financial issues/choices that you have to make and get advice and direction on these. My objective with people in these situations is simple - it is putting a plan in place for you and your families' financial security and well being and I will make sure this happens.
For further tips Log onto www.citizensinformation.ie