Working as a financial adviser for over 30 years, Andrew has helped many clients to process their situation and form a strategy to get back on their feet after being made redundant. With a deep understanding and empathy for the impact of redundancy on one’s wellbeing, Andrew stresses the importance of seeking expert financial planning advice before making any rash decisions triggered by stress or panic.
“It often surprises and reassures people that the first thing I advise them to do when they’ve been made redundant is… nothing. If you are in the possession of redundancy pay or company payout, just stick it in the bank. Do not do anything until you’ve sat down, evaluated your position, and made a plan with your financial adviser.”
- Andrew
Financial Adviser, NZFP
Andrew Doak has had plenty of experience consulting with people who have been made redundant in the past and is glad to pass on this knowledge on to others, especially during times of economic pressure such as what we’re experiencing today.
“Some people have never had a lump sum of money given to them like this, and when it’s happened in the middle of a crisis the pressure of making the right decision is compounded tenfold. I’ve witnessed so many different scenarios where people have made mistakes – from average employees to CEOs of major businesses – and am able to share these to help others now. People make these mistakes because they are under stress and typically can’t see the wood from the trees.”
Here are some common scenarios that you can avoid with proactive financial planning:
Unfortunately, many people make the mistake of rushing to use their redundancy pay to clear their debt, thinking that this will save them financial stress in the long run. It’s important to remember that redundancy payouts are provided in lieu of wages to cover day to day expenses when you have no other source of cash flow.
Andrew recalls a sad case of one person who could no longer afford to run their car after using their redundancy pay, which was worth hundreds of thousands of dollars, to retire his debt and become debt-free.
“I remember him being very late to our first meeting, and apologising profusely because he was having to use public transport for the first time. How could he attend job interviews without being able to get to places on time? He may be debt-free, but this person then had no cash flow to take care of his day-to-day expenses.”
Redundancy pay is there to be spent, and to help you sustain your lifestyle until you’ve found alternative employment. This example demonstrates the unfortunate consequences of making rash decisions with your redundancy pay before seeking professional guidance and evaluating your overall position.
The pendulum swings the other way when people are well set-up financially and find good employment shortly after being made redundant, but become let their financial disciplines and focus drift off target leading up to retirement.
Andrew remembers one case where a person lost their job in a successful senior position. They had been preparing themselves well for retirement up to this point and had alternative means of cash flow, so Andrew advised that they prioritise investing and retire debt with their savings – on the condition that when they find another job they resume saving for retirement.
Unfortunately, this person lacked the discipline to return to good financial behaviour once they found another high-paying job.
“This person was lucky enough to find another excellent job after being made redundant, but every time he returned to my office he had something he wanted to save for other than retirement – first it was a new car, then home renovations, then a pool and a big holiday. Although I gave him objectively good advice in the short-term, this person did not have the discipline to return to good financial behaviour and became complacent with his retirement savings.”
This scenario shows why it’s important to stick to your financial plan and be disciplined. It’s essential to put time frames and conditions around your financial plan and stick to them, otherwise you can become complacent and be unprepared when your situation changes.
If you’ve been made redundant, you might be feeling totally lost and unsure of who to trust. NZFP is proud to offer financial planning and advice that is not only empathetic to what you’re experiencing, but is realistic and achievable for your specific situation.
“We don’t make outlandish promises and we don’t have a crystal ball. We provide our clients with objective advice based on decades of experience helping people through similar crises and watching them succeed. We’ve found that, through applying a disciplined approach and showing compassion, we reduce stress and minimise the bad decisions that get people into tricky situations.”
If you’re facing the possibility of redundancy, or have been made redundant recently, remember to stop and evaluate your position before making any rash decisions with your precious redundancy pay. NZFP is here to help you, with financial planning and expert advice to help Kiwis regain their financial security.
