How to plan your finances if you are worried about redundancy

With many businesses struggling to stay afloat amid the pandemic, many are making cuts and redundancies. Figures from the Office for National Statistics released in November showed a record number of redundancies in the period before tougher lockdown restrictions were imposed.

The ONS said a record 314,000 people lost their job in the three months to September – a period in which the Treasury’s wage subsidy scheme became less generous. The ONS said the 181,000 quarterly increase in redundancies was unprecedented, helping to increase the UK unemployment rate from 4.1% to 4.8% between the second and third quarters of 2020.

Young people in particular have been hit the hardest by job losses, with an unemployment rate three times the national average. It’s not always easy to create a contingency plan in case of redundancy, especially when so many people are living hand-to-mouth. So how can you plan your finances if you are worried about losing your job?

Check if you are eligible for a redundancy package

If you’re concerned about being made redundant or believe you may lose your job in the near future, it’s important to check what redundancy payment you will receive. Go through your employment contract, which will state what package you may be entitled to.

READ MORE: How to deal with redundancy

You can work out how much redundancy pay you might get by visiting the Direct.gov website. It depends on your age, weekly pay and number of years in the job. In the UK, you’ll normally be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for two years or more.

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You’ll get half a week’s pay for each full year you were under 22, one week’s pay for each full year you were 22 or older but under 41, and one and half week’s pay for each full year you were 41 or older. Your employer can’t pay you less than the statutory minimum, but they may pay you more if your contract stipulates this.

If your company suddenly collapses and you are out of work immediately, you are still entitled to redundancy pay but you have to claim it from the government’s Insolvency Service instead.

Think about your short-term finances

It’s easy to start panicking about the future when facing redundancy, but it’s important to focus on the things you need to pay for immediately, such as rent, mortgage, bills and debt repayments.

Work out how much money you need for the following few months and how much you have in your bank account. If you do lose your job, you may be able to cover your living costs with redundancy pay or with your savings.

You may benefit from asking for a repayment holiday on debt if you need. Although you will have to pay the money eventually, the break will give you some time to plan out your finances and apply for jobs.

Find out about benefits

If you are made redundant you may be entitled to state support such as universal credit, jobseeker’s allowance, housing benefit and council tax reduction. Use a benefits calculator to find out what benefits you could get.

READ MORE: What are your rights if you are made redundant during coronavirus?

However, note that many state benefits are means tested and take into account how much redundancy pay you received.

Think about making spending cuts

Keeping a spending diary can help you keep tabs on the seemingly small outgoings that easily add up, like takeaways and coffee. Even if it’s just for the short term, cutting these expenditures can help take some of the pressure off your finances if you’re concerned about being made redundant. The Citizens Advice has a budgeting tool to see exactly where your money goes each month.

It is also worth checking to see if you could save money by switching energy suppliers, or if you can reduce the amount you spend on food shopping.

Redundancy due to Covid-19

In July, a new law was passed to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough wage. You’re normally entitled to statutory redundancy pay if you’ve been working for your current employer for two or more years.

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