💰 Tax and Immediate Financial Stabilisation

Tax Treatment Conceptually

Redundancy payments are taxable income subject to PAYE.

How Tax Works:

• Redundancy payment taxed as lump sum income
• May push you into higher tax bracket temporarily for that payment
• Employer deducts PAYE before paying you
• Final payment amount is after-tax
• IRD may reconcile at year-end, possible refund if overpaid

What This Means:

The redundancy payment you receive is already taxed. Don't expect to receive the full gross amount. Plan based on net (after-tax) amount available.

Immediate Cashflow Stabilisation

First priority is understanding your financial position and stabilising cashflow.

Immediate Assessment:

• Calculate available funds: Redundancy payment plus savings
• List essential expenses: Rent/mortgage, utilities, food, transport
• Determine runway: How long funds last covering essentials
• Identify discretionary spending: What can be cut immediately

Cashflow Actions:

• Separate redundancy payment into dedicated account
• Calculate weekly/fortnightly budget for essentials
• Cut non-essential spending immediately
• Cancel or pause subscriptions and memberships
• Avoid large purchases or commitments

Budget Reset Mindset

Shift from employed income mindset to limited-funds survival mode.

Mental Shift Required:

• No regular income arriving
• Every dollar of spending reduces finite pool
• Preserve funds for maximum duration
• Distinguish needs (essentials) from wants (everything else)

Needs vs Wants:

• Needs: Housing, basic food, essential utilities, transport to job interviews, phone/internet for job search
• Wants: Dining out, entertainment, new clothes (beyond interview outfit), holidays, upgrades, conveniences

Radical Cost Cutting:

This is survival mode, not normal living. Cut everything possible. Cook at home, use free entertainment, postpone anything not essential. Goal is making funds last until new income secured.

🛡️ Insurance, KiwiSaver, and Income

Reviewing Insurance

What Happens to Coverage:

• Employer-provided insurance: Usually ends with employment
• Health insurance: May need individual policy to maintain coverage
• Income protection: May have waiting period, check if redundancy covered
• Life insurance: Employment-based coverage ceases

Decisions to Make:

• Can you afford to maintain personal insurance during unemployment?
• Is income protection insurance providing redundancy benefit?
• Balance insurance costs against limited funds
• Prioritise based on dependents and health needs

KiwiSaver Implications

What Happens:

• Employer contributions stop immediately
• Your funds remain invested in chosen fund
• Account continues, not closed or frozen
• Can make voluntary contributions if able
• Government contributions may continue if contributing voluntarily

Hardship Withdrawal:

• KiwiSaver allows hardship withdrawal in severe financial difficulty
• High threshold - must demonstrate genuine significant hardship
• Not for maintaining lifestyle, only essential needs
• Permanently reduces retirement savings
• Should be last resort after all other options exhausted

Best Approach:

Leave KiwiSaver untouched if at all possible. Use redundancy payment and savings first. KiwiSaver withdrawal means sacrificing future for present - only do if absolutely necessary for survival.

Seeking New Income

Immediate Actions:

• Update CV: Current, polished, achievement-focused
• Activate network: Contact former colleagues, industry contacts, friends
• Register with recruiters: Multiple agencies in your field
• Apply strategically: Quality applications to suitable roles
• Online presence: LinkedIn updated and active

Income Options:

• Similar role: Target equivalent position in different company
• Adjacent roles: Transfer skills to related positions
• Temporary work: Bridge income while seeking permanent role
• Contract/freelance: Use skills independently
• Different field: Pivot if industry declining

Use Transition Productively:

• Skill development - online courses, certifications
• Networking - industry events, professional associations
• Volunteering - maintain activity, build connections
• Side projects - portfolio building, demonstration of initiative

⚠️ Avoiding Panic and Planning Ahead

Avoiding Panic Decisions

Bad Decisions to Avoid:

• Withdrawing KiwiSaver prematurely: Sacrifices retirement for short-term relief
• Selling assets hastily: May get poor price in rushed sale
• Taking unsuitable job: Accepting poor fit out of desperation
• Relocating impulsively: Moving without securing work first
• Starting business unprepared: Using redundancy pay for unplanned venture
• Large purchases: "Treating yourself" depletes limited funds

Why Panic Leads to Poor Choices:

Fear overwhelms rational thinking. Desperate to "do something," make reactive decisions providing temporary relief but creating long-term problems. Better to sit with discomfort while thinking clearly than act rashly and regret later.

Protecting Savings

Redundancy Payment Strategy:

• Separate account from regular spending
• Calculate sustainable weekly withdrawal
• Preserve for essentials and job search costs
• Not for maintaining pre-redundancy lifestyle
• Goal is maximum duration, not comfort

Other Savings:

• Emergency fund now being used for its intended purpose
• Access in controlled manner, not depleting rapidly
• Investments best left untouched unless truly necessary
• Avoid converting long-term assets for short-term needs

Communication with Lenders

Proactive contact with mortgage and loan providers essential.

Why Contact Early:

• Shows good faith, not trying to avoid obligations
• Hardship provisions available before you're in arrears
• More options available early than after missed payments
• Prevents credit damage from defaults

What to Discuss:

• Temporary payment reduction or holiday
• Interest-only period for mortgage
• Payment plan adjustments
• Deferral of payments

Be Honest:

Explain redundancy situation, demonstrate efforts to find work, propose realistic arrangement you can maintain. Lenders prefer working with cooperative borrowers over pursuing defaults.

Planning During Transition

Use Time Wisely:

• Skill gaps: Address weaknesses limiting employability
• Certifications: Obtain qualifications opening opportunities
• Network building: Develop relationships leading to opportunities
• Career pivot research: If industry declining, explore alternatives
• Personal development: Work on interview skills, presentation

Maintain Routine:

• Job search is full-time job
• Set schedule, workspace, goals
• Track applications and follow-ups
• Stay professionally active and visible

Mindset Management:

• Rejection is normal in job search - don't take personally
• Maintain confidence despite setbacks
• Celebrate small wins (interview invitations, positive feedback)
• Stay connected to supportive people
• Remember this is temporary situation

Final insight: Redundancy means position eliminated, not performance failure - business decision, not reflection of your worth. Emotional impact severe including shock, grief, fear, shame, anger. Acknowledge feelings but make rational decisions. Tax treatment means redundancy payment already has PAYE deducted - plan on net amount available. Immediate cashflow stabilisation critical: assess funds, list essential expenses, determine how long money lasts, cut discretionary spending immediately. Budget reset required - shift from regular income to limited funds survival mode, distinguish needs from wants, radical cost cutting. Review insurance - employment coverage ends, decide what to maintain given limited funds. KiwiSaver contributions stop but funds remain invested, hardship withdrawal possible but should be last resort. Seeking new income urgently: update CV, activate network, register with recruiters, apply strategically, consider temporary work. Avoid panic decisions: don't withdraw retirement savings prematurely, sell assets hastily, take unsuitable job out of desperation, or make impulsive life changes. Protect redundancy payment - separate account, sustainable withdrawal rate, preserve for essentials and job search. Communication with lenders important - proactive contact before arrears, hardship provisions available, more options when cooperative. Plan during transition - use time for skill development, networking, career research, maintaining professional routine. Job search is full-time work requiring structure and persistence. Redundancy is temporary crisis requiring immediate practical responses and sustained effort, but manageable with clear thinking and disciplined approach. Many people successfully navigate redundancy and emerge in better positions - focus on actions within your control rather than dwelling on circumstances beyond it.