Grab onto that lifeline
http://www.money-tips.com.au/articles/194/1/Grab-onto-that-lifeline/Page1.html
David Koch
David Koch is a well known television personality and finance writer for the Sydney Morning Herald By David Koch
Published on 02/10/2009
Regular pay cheques are a must in tough times. FOR years jobs have been in plentiful supply - it's been a buyer's market. Changing jobs was pretty simple because there were plenty on offer and we could literally pick and choose. Bosses had to be nice to us because we were so hard to replace if ever we left.
FOR years jobs have been in plentiful supply - it's been a buyer's market. Changing jobs was pretty simple because there were plenty on offer and we could literally pick and choose. Bosses had to be nice to us because we were so hard to replace if ever we left.
But things are changing dramatically. Retrenchments are becoming increasingly common, unemployment is on the rise and there is still a lot of debate on how many will be out of work during this downturn.
Just last week the Federal Government revised its unemployment projections up to 7 per cent and economic forecasts are constantly being revised downward. No one really knows how bad this downturn is going to get and that's the real worry.
Despite last week's $42 billion stimulus package and cut in official interest rates, the experts really don't know if this will be enough to prevent us from falling in to recession and whether it will be a "hard" or "soft" landing.
So it's everyone for themselves. In this environment you can't afford to depend on the advice of others when it comes to your financial wellbeing.
When things look so grim the key is to protect your income - your cash flow. That's your job.
Continuing income from a job is your financial lifeline during a downturn so make sure you keep it. Subtly keep reminding the boss how valuable you are, don't be demanding or pushy for a pay rise and work to become a more valuable employee.
It's all about job security.
But it is going to become a fact of life this year that redundancies will increase. So make sure you understand the implications and how to handle it to your advantage.
Redundancy pay-outs aren't taxed like regular income. The Government gives you a break because this money has to support you and your family until you find a new job.
Part of the redundancy benefit is tax-free up to a limit of $7350 plus $3676 for each year of service with that employer. This money can't be rolled over into superannuation.
Amounts over that limit are classified as an employment termination payment (ETP) and are taxed. You also pay tax on any unused annual leave.
Say you receive a redundancy pay-out of $50,000 after eight years at a company, your tax-free limit would be $7350 + $29,408 ($3676 x 8 years) = $36,758. The remaining $13,242 would be classed as an ETP and you would have to pay tax on that amount.
Check your employer handles this pay-out correctly and doesn't take out too much tax.
You must then decide what to do with a redundancy pay-out, which is one of the biggest financial decisions you will ever make and will depend on your employability, age, debt and other income sources.
How long are you likely to be unemployed? How long can your family survive without your income? How long will your pay-out cover your current financial commitments?
Don't rush in to spending or investing a pay-out. Take your time and get advice. Think about putting the money in a high-interest savings account for three to six months while researching your options.
If you are confident of finding another job, the first priority should be to reduce debt. That should lower any monthly loan repayments. What's the point of earning 5 per cent on a lump sum, and paying tax on the returns, if you are paying 6.5 per cent interest on a mortgage? If you use the money to pay off a chunk of the mortgage, check whether the loan has a redraw facility just in case you take longer to find another job.
If you've found a new job and paid off any debts, consider a higher-risk, higher-reward strategy and look at investing in shares or growth managed funds.
If the job outlook is bleak, think about splitting the money between accessible cash accounts, term deposits and income-paying managed funds. While you get organised contact Centrelink to find out if you're eligible for unemployment benefits.
But things are changing dramatically. Retrenchments are becoming increasingly common, unemployment is on the rise and there is still a lot of debate on how many will be out of work during this downturn.
Just last week the Federal Government revised its unemployment projections up to 7 per cent and economic forecasts are constantly being revised downward. No one really knows how bad this downturn is going to get and that's the real worry.
Despite last week's $42 billion stimulus package and cut in official interest rates, the experts really don't know if this will be enough to prevent us from falling in to recession and whether it will be a "hard" or "soft" landing.
So it's everyone for themselves. In this environment you can't afford to depend on the advice of others when it comes to your financial wellbeing.
When things look so grim the key is to protect your income - your cash flow. That's your job.
Continuing income from a job is your financial lifeline during a downturn so make sure you keep it. Subtly keep reminding the boss how valuable you are, don't be demanding or pushy for a pay rise and work to become a more valuable employee.
It's all about job security.
But it is going to become a fact of life this year that redundancies will increase. So make sure you understand the implications and how to handle it to your advantage.
Redundancy pay-outs aren't taxed like regular income. The Government gives you a break because this money has to support you and your family until you find a new job.
Part of the redundancy benefit is tax-free up to a limit of $7350 plus $3676 for each year of service with that employer. This money can't be rolled over into superannuation.
Amounts over that limit are classified as an employment termination payment (ETP) and are taxed. You also pay tax on any unused annual leave.
Say you receive a redundancy pay-out of $50,000 after eight years at a company, your tax-free limit would be $7350 + $29,408 ($3676 x 8 years) = $36,758. The remaining $13,242 would be classed as an ETP and you would have to pay tax on that amount.
Check your employer handles this pay-out correctly and doesn't take out too much tax.
You must then decide what to do with a redundancy pay-out, which is one of the biggest financial decisions you will ever make and will depend on your employability, age, debt and other income sources.
How long are you likely to be unemployed? How long can your family survive without your income? How long will your pay-out cover your current financial commitments?
Don't rush in to spending or investing a pay-out. Take your time and get advice. Think about putting the money in a high-interest savings account for three to six months while researching your options.
If you are confident of finding another job, the first priority should be to reduce debt. That should lower any monthly loan repayments. What's the point of earning 5 per cent on a lump sum, and paying tax on the returns, if you are paying 6.5 per cent interest on a mortgage? If you use the money to pay off a chunk of the mortgage, check whether the loan has a redraw facility just in case you take longer to find another job.
If you've found a new job and paid off any debts, consider a higher-risk, higher-reward strategy and look at investing in shares or growth managed funds.
If the job outlook is bleak, think about splitting the money between accessible cash accounts, term deposits and income-paying managed funds. While you get organised contact Centrelink to find out if you're eligible for unemployment benefits.