If you have been made redundant, the last thing you will want to do is think about money. Sometimes it pays to ignore your feelings. This is one of those times. Setting up a simple system to manage your money in the immediate aftermath of redundancy is the ultimate act of self-love. It gives you time to figure out what to do next. As is often the case, the things in life we don’t want to do are often the things we must do in order to have a great life.
How to manage your money after redundancy in 1 sentence
Pause all unnecessary spending, work out how much you can live off and pay yourself this amount from a sinking fund each week until you find your next job.
7 steps to manage your money after redundancy
- Pause all unnecessary spending.
- Define categories for your weekly expenses. These were mine:
- Rent 🏠
- Utilities 💡
- Food 🍽️
- Health 🏥
- Transport 🚗
- Investments 💰
- Giving 🎁
- Write down how much you want to pay yourself for each category per week.
How to figure this out to set yourself up for success:
- Log into your internet banking
- Set the time range to the last 4 weeks
- On a separate piece of paper or in a spreadsheet, create three columns. Title the first column ‘Item’, the second column ‘Category’ and the third column ‘Amount’.
- List every expense for the last 4 weeks. Remember to also include things you paid for in cash.
- Add up everything in the Amount column and divide by four. This gives us our average weekly spending over the previous four weeks. We’ll call this number our Last Resort Weekly Income.
- We could have stopped here, but remember, our goal is to reduce unnecessary spending. For a more situation-appropriate Last Resort Weekly Income, go one step further and add up everything in the Amount column for each category and divide by four. Then, decide if you want to spend more or less in each category. Be realistic and kind to yourself. For me, the investment category was where I decided to massively reduce my weekly spending.
Add up the new weekly amounts you’ve decided on for each category. The total is going to be your most situation-appropriate Last Resort Weekly Income.
- Create a new checking account on internet banking and nickname it ‘Last Resort’
- Put at least 3 months’ worth of Last Resort Weekly Income into ‘Last Resort’ (or whatever you can afford). Hopefully you have a well-stocked emergency fund to draw this from. It’s this money’s time to shine! If you don’t have a well-stocked emergency fund, take a photograph of this moment in your mind and make a promise to yourself that you will henceforth make it your No. 1 priority to always keep a well-stocked emergency fund.
- Set up a weekly auto payment from your ‘Last Resort’ account to your everyday checking account. The amount to transfer is your Last Resort Weekly Income. You might like to set up the auto payment to happen on the same day you used to get paid.
- And now the fun part – spend your Last Resort Weekly Income each week! You may need to adjust a little in the first couple of weeks, but it’s important to stick to the number you calculate – just like when you were pulling a pay check, once the money’s gone for the week, it’s gone. Celebrate setting up such a great money management system during a trying time! 🎉
It’s not about the money
The space this simple system frees up in your mind is significant. Use it to relax, rejuvenate and when you’re ready, figure out what you want to do next.
Any money you earn before you pull a paycheck again, add to your Last Resort account. This buys you more time to find your great next job.
When you are earning a pay check again, use whatever money is left in your Last Resort account to replenish your Emergency account and then invest the rest. From here, you can close your Last Resort account. Now you have a system to quickly and effectively manage your money after redundancy 🙂
Resources to help you bounce back from redundancy
Good luck! You will be okay.
Thanks to Hamish Bulsara, Christine Chow and Cynthia Gao for reading drafts of this.