Control of your personal economy is vital in protecting against external threats such as redundancy and can also allow you to take advantage of the opportunities that may arise, writes Johnny McNamara.

The current downturn in the global economy has created an environment with an ever-increasing level of threats to all of us. These threats are often outside of your control and therefore, there is little or nothing that you can do to stop them affecting you. However, the degree to which these threats affect you can be limited by taking ownership over the factors that you can control.

Identifying the threats to your personal economy is the first step in taking more control. For example, one of the biggest threats to many people today is the threat of redundancy and given the fact that we cannot control a redundancy, what can be done to manage your finances through this threat?

First things first

The first thing that you can do is to act now and seek to protect yourself against the threat of redundancy. At present, there are policies available that can provide you with a replacement income in the event of involuntary unemployment. There are also products, such as mortgage repayment protection, that can cover your mortgage repayments in the event of redundancy. These products do not pay out indefinitely, but can help you to manage your way through a potential cash-flow crisis in the initial period after redundancy.

Obviously, there is a cost involved in taking out one of these policies, so it is important to identify how this cost may affect your current cash-flow position. That said, this kind of protection can help you get through the initial stages of your redundancy and allow you the financial freedom to plan for the future. In turn, by limiting the immediate effects on your cash-flow, it can give you an opportunity to reassess your career path and may also allow you the opportunity to re-skill for an entirely new career.

Already redundant?

If it’s too late to protect yourself against the threat and you are faced with the reality of redundancy, you need to understand all of the implications this has on your personal economy so that you can adequately plan the road ahead.

The tax treatment of redundancy payment is the first area that you need to manage and control. There are a number of reliefs available to you on a redundancy payment that can help reduce your tax liability. The relief option you choose is not always a straight-forward case of selecting the largest relief, as in some cases you may be waiving your rights to a tax-free lump sum from your pension on retirement. So although you may receive more now, you may be forfeiting a lot more in the future. Therefore, selecting the appropriate relief is vital and it is important that you take independent advice to ensure that the right decision is made.

There is also a further relief called ‘Top Slice’ relief that is available to you in the year of redundancy. Many people tend to overlook this relief due to that fact that you can only claim it at the end of the tax year. In many cases, by not claiming Top Slice relief people can miss out on substantial tax rebates. This is valuable money needed to help you financially following a redundancy and could be lost if you do not know how to claim it back.

Taking control of your pension fund

The next area that must be looked at in the event of redundancy is your pension. If you have been in pensionable employment for a number of years, it is likely that you have built up a substantial pension fund within the company pension scheme. This is a valuable part of your personal economy and it is therefore vital that you make the right decision in relation to this. The event of redundancy can often result in an opportunity for you to take ownership and control of your pension fund. In certain circumstances, it is now possible to take ownership of the fund that you have built up within the company pension. Ownership in this case does not simply mean giving you the ability to choose where your money is invested pre-retirement, but also involves the ownership of the money post-retirement.

In a typical company pension scheme, owning the pension fund post-retirement is not possible as in most cases, you will be forced to buy an annuity or income for life. This involves giving away the fund that you have built to an insurance company who will pay you a certain amount for as long as you live. The key unknown in this equation is how long you are going to live.

If, by taking ownership of the pension fund, you can keep control of the total value of the fund, you now open up new possibilities post-retirement. It also means that you no longer have to give away your fund to a third party, but can now control and manage your asset in retirement.

By taking ownership of your pension fund, you now have the ability to bring another part of your personal economy under tighter control and possibly open up options that would not have previously been available to you. Many times it can be the event of redundancy that opens up this option for you.

You can now see that even the event of a redundancy can present opportunities for you once you manage your finances carefully. The key to managing your finances in any economic environment is to take control and ownership of as many areas as you can. The more areas of your finances that you control and own, the less of a threat the outside factors become.

If you are faced with or worried about redundancy or any other area of your finances, call McNamara & Associates on 01 2309000 to arrange an appointment or visit www.personaleconomy.ie.

Next issue… We look at the concept of real ownership within your personal economy.

In This Issue

- 10 Tips for Efficient Credit Control
- Tax Briefs
- Business Briefs
- Legal Briefs
- Redundancy FAQs

Plan to Survive and Succeed in These Turbulent Times

There is little doubt that 2009 will be more difficult than 2008 for all businesses. Owner managers feel under pressure like never before and in a lot of instances feel lonely and isolated and do not know where to look for assistance. Therefore now more than ever before is a time when all owner managers should be stepping back and taking a strategic overview of how their business is positioned. This is not the time to let yourself become totally embroiled in the operational issues of the business. Those who position themselves properly should be looking beyond the short term and taking a view as to how they can benefit out of the opportunities that will be there when the cycle of recession passes on.

Now is the time for you to document your strategic goals and plans for the future and commence working towards the implementation of your strategic plan.

Strategic planning includes targeted actions followed by the implementation of these actions, monitoring of results and comparing the results to the plans. Evidence suggests that individuals and businesses that plan and have clear written goals are much more likely to achieve success. Aim to have SMART goals in place which are:

SPECIFIC Clear and focused
MEASURABLE So you can track progress
ACTIONABLE Where your actions make a difference
REALISTIC Achievable by you not a dream
TIME BASED With a beginning and an end

When setting about the creation of your plan you should cover the following principle issues. Your objectives- personal, business, and strategic.

• Your objectives- personal, business, and strategic
• Your business-existing products and services
• Your business -potential products and services
• Your business- sales and marketing
• Management information systems
• Managements structures and roles
• Location
• Financial module
• An action plan
• A review process

If in the preparation of your strategic plan one of the key issues for you is survival in the climate which we find ourselves then some of the following points will need critical attention.

Thinking Cash and The Cash Flows Your Business Will Need

A detailed cash flow statement for the next twelve months should be drawnup and reviewed at least monthly to see if the targets are being achieved.

Banking Facilities

Know the levels which are going to be required and be open with your finance provider. If necessary look at alternative providers which can assist with certain areas of the business.

Cost Reduction Programme

Be willing to take decisive action and review all costs of the business. Have the right business model for the market condition you find yourself in.

Staff Knowledge

Keeping employees informed of the status of the business is crucial.

Managing Risk and Uncertainty

Do we know what the main risks to the business are and what is the likely impact of a sudden hit?

Look Ahead

Do not just focus on the here and now. There will be opportunities once survival has been achieved.

In other words you will have clarified where you are now, where you want to go, and how you might get there particularly in the climate we find ourselves today.

The preparation of a new strategic plan should give you the confidence about the future of your business and your personal targets – a confidence that will inspire and motivate you and others around you.

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