Whether your job is already at risk or you’re worrying about potential cuts, one of the most important things you can do at this time is to take stock of your finances. This will help you start to take control and you’ll be able to cope much better if you lose your job.
Step 1 – Take stock of your finances
If you don’t already have a budget listing all your income and spending – now is the time to do it.
Most people underestimate how much they spend each month, so you might be surprised by the results.
Step 2 – Find ways to cut back
Once you have a clear idea of how much you’re spending, start thinking about how your budget will be affected if you lose your job.
You can work out what spending you’ll need to cut back on so that you can cope with a lower income.
If you cut back now you could use the money to build up a savings cushion to help you get by if you lose your job.
Take a close look at what you spend your money on and divide it into essential and non-essential items.
Step 3 – Get debts under control
Make sure you pay off priority debts first. These are debts such as mortgage or rent arrears, and fuel bills. Find out more in How to prioritise your debts.
While you’re still in work your credit score will be better than if you find yourself without a job.
So seize the moment.
Now’s the time to look at your debts. Switch lenders to get the best rates and look at paying off as much of the debt as you can, but watch out for early repayment charges.
Step 4 – Check for any insurance
In the past, because of the way payment protection policies were sold, you might not realise that you have this cover. Ask your lender whether your mortgage, loan or credit card is covered by insurance.
Check for any:
- Payment protection insurance (PPI)
- Short-term income protection (STIP), or
- Mortgage payment protection insurance (MPPI)
That you might have previously taken out.
If you lose your job or are too ill to work, you might be able to make a claim.
In the past, because of the way payment protection policies were sold, you might not realise that you have this cover.
Ask your lender whether your mortgage, loan or credit card is covered by insurance.
If you already know that you’re at risk of redundancy, it’s probably too late to take out payment protection insurance.
Most policies have clauses that will refuse to pay out if you knew you were to be made redundant when you took out the insurance or if you lose your job within the first few months of taking out the policy.
If you have insurance and your claim is refused, you might have been mis-sold the policy and could be eligible to claim compensation.
Step 5 – Try to build up a savings cushion
Ideally, aim to have between three and six months of your living expenses saved in an easy access, high-interest bank or building society account.
Even a smaller amount will be useful. Having cash in the bank is always good and will help you manage financially until you find a new job.
Step 6 – Look at ways of making money
Think about other sources of income you can tap into.
For example, did you know that if you have a spare room, you could rent it out and not pay tax on the first £7,500 of rental income?
You’ll need permission from your mortgage provider or landlord to have a lodger and you should let your buildings and contents insurance companies know.
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