There are currently around 1.42 million unemployed people in the UK – according to the Office for National Statistics – and 96,000 people lost their jobs between October to December 2017. While the redundancy figure is 11,000 lower than the number for the year before, for many people there still exists a significant threat of ending up out of work. So, what do you do if you’re suddenly without the monthly income that has kept you afloat?
How to to manage your money now you’re unemployed
You could have become unemployed either because your job became redundant or because your employer felt your performance in the jobs was not good enough. The difference here is that if your job was made redundant you will probably have been paid a redundancy sum. This can give you some financial protection – at least for a while.
Becoming unemployed could happen to an employee at any time – many simply don’t see it coming. Coping financially with a period of unemployment before you secure another job, can involve some careful planning and money management. Many, many people in the UK do not have any savings to protect them when they become unemployed. If you are currently in work then you really need to build up an emergency fund now! It will not be possible to get a loan when you are unemployed – lenders are bound by affordability tests.
Here’s are our suggestions as to how to deal with money while out of work:
Revise your budget. A post-redundancy budget is going to be significantly different to the budget you may have enjoyed while in work. Now is the time to reevaluate your spending and identify where you can make savings. Start by working out what your income is going to be per month until you find another job – this is mostly likely to be a combination of redundancy pay, benefits and savings. Then go through all your spending and cut back wherever you can.
Claim benefits if you’re entitled to them. Depending on your circumstances, you may be entitled to a range of benefits, including jobseeker’s allowance. It’s worth visiting your local job centre to find out what financial support you might be able to get while you’re in-between jobs.
Manage your redundancy pay. It’s important to establish that you’ve paid the right amount of tax on redundancy payments (anything under £30,000 should be tax free). A redundancy pay out can seem like a huge sum of money when first received but will quickly dwindle. Make sure you put the money aside if you can, preferably somewhere that it can earn some interest, and don’t be tempted to go on a spending spree with it.
Are you eligible for a tax rebate? Every opportunity is worth investigating when your income comes to a sudden halt like this. If you were made redundant half way through a tax year, for example, then you could be entitled to some tax back. HMRC will be able to tell you whether that’s the case.
Don’t avoid your debts. If you’ve been made redundant then you might be feeling incredibly stressed about the future and unsure how you’re going to cover payments in the long term. The ‘head in the sand’ approach does not work in this situation – you need to face up to your debts and make sure they are properly managed. Prioritise those debts that are the most important – for example, the mortgage that will keep a roof over your head – and then allocate funds to pay the others where you can. If you’re struggling, speak to a lender or creditor before you get into a position where you’re in default.
Avoid borrowing any more. If you don’t have a job then your borrowing options will be more limited but you can still borrow via homeowner loans etc. However, it’s important to consider whether this is really necessary, as it will create another obligation that could be stressful to fulfil. If possible, avoid taking on anymore borrowing until you at least have a job offer on the horizon.
Proactively look for work. Being made redundant can be depressing – it’s the same for everyone. However, now is not the time to sit back and wallow in it. The jobs market is not as dire as it used to be in the UK (in fact the unemployment rate is at a 42 year low!) and proactively looking for work will help to keep spirits up, as well as increasing your chances of success. And to be able to claim Universal credit you will need to show you are looking for work.
When you start work again… make it a priority to repay any additional debts you’ve taken out while you were redundant and focus on clearing credit cards with high interest rates first. Give your new employer your P45 so that you can go straight onto the right tax code and try to put aside a proportion of your remaining redundancy money to provide a safety net for the future.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley