How would redundancy affect your finances?
Don’t panic – but just how would redundancy affect your finances? With the credit crunch going full steam ahead, and with no signs of abating, companies are announcing job cuts every day. It makes sense to think about what you would do, and how you would manage if you were made redundant. Laura Starkey reports.
Anyone hoping for a quick British bounce-back from the credit crunch might have found their faith dented this week.
In their latest report, the Office for National Statistics (ONS) revealed that unemployment rose by more than 14,000 in the first quarter of 2008.
Adding to the gloom, economists have warned that, while employment is still high, the number of people seeking work is beginning to outstrip the amount of available jobs.
And anxiety about house prices and the slowdown in property sales could also fuel concerns about unemployment. On Monday, the Royal Institute of Chartered Surveyors (RICS) predicted that the number of homes sold during 2008 will be 40% lower than in 2007.
If the effects of plummeting property sales and sliding house prices hit the high street, businesses will suffer. Should that situation arise, job losses may not be far behind.
Yet even more worryingly, alarmingly few Brits are prepared for the kind of rainy day that redundancy, sudden illness or an unexpected job loss might bring.
Brits have lost the savings habit
While a minority remain steadfast savers, few Brits these days are committed to building up a protective ‘cash cushion’ for emergencies.
The latest Wealth and Assets Survey by the ONS found that 39% of respondents would rather spend now than save for retirement. It also revealed that over 30% of adults – around 14 million – have no savings or investments.
While belt-tightening is partly to blame, with 37% of people claiming they’re unable to save at the moment, too many of us are treading the savings tightrope. By putting nothing aside now, we could be setting ourselves up for a hefty fall later.
According to research by Combined Insurance, half the population could survive financially for just 17 days if they suffered an unexpected loss of income.
And while I’m not suggesting that we’re likely to see unemployment swell to that sort of level, I do think it’s incredibly scary that so many of us might struggle to cope in a crisis.
What can you do NOW
Our favourite website for all things money related, The Fool, says it’s wise to have a rainy day fund of at least three months’ salary set aside, in case of emergencies.
Right now, I’d say it’s even more crucial to have that behind you – and to keep it growing if you can.
If you have money put by and can continue adding to your savings pot, the best thing to do is make sure that you’ve got your cash stashed somewhere smart.
If you’re a savings newbie, I think the best way to start is by opening a cash ISA – where you can stash up to £3,600 tax free.
Have you got it covered?
Finally, if you have dependents or are a homeowner, it might also be worth taking a moment to consider your insurance needs.
Mortgage payment protection insurance (MPPI), critical illness cover (CIC) or income protection insurance (IPI) might be appropriate for you, and could be of help if your circumstances change.
However, remember to shop around for the best possible deal, and don’t forget that it’s usually a bad idea to buy MPPI from your mortgage lender.
If you suspect you’re overpaying for insurance, why not look for a more competitive policy – and put the pounds you save into your savings pot?
While the UK economy is still officially ‘slowing down’ rather than drifting into recession, I still think it makes sense to hope for the best and get ready for the worst.
Laura Starkey works for our favourite site on all things money, www.fool.co.uk.
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