Making the most of redundancy money

SO YOUR position has been made redundant. Whether you got a pink slip or a letter on a plain old sheet of white paper, you are still out of a job.

The good news is you have a bit of redundancy money. It is the position thousands of Jamaicans have found themselves in this year. Many persons have received separation packages and are now looking for advice on what to do with the money, as well as how they can generate income.

Anthea Domville

One reader, who we will call John, wrote: “My position was recently made redundant and I was given a payment of $550,000. I must try to start a business as I do not see myself working for anyone. I have a mortgage of $22,000 per month and a wife and two children to take care of. I really have no skills – like carpentry or masonry – but I think I could be good a salesman, so I have been thinking of buying and selling something. Please advise me about what I can do.”

save for future

According to Anthea Domville, the senior manager for portfolio planning and private clients in the Capital and Credit Financial Group, the first thing John should do is set aside some money for the future.

“It’s important to consider long-term goals and things like retirement. Sometimes when we get a lump sum, we think we have a lot of money and we go spending,” she says.

Domville suggests that the reader puts at least $150,000 aside.

invest

“To maximise his earning potential, John could put $100,000 in a Government of Jamaica Treasury bill. That can be done through Capital and Credit Securities Limited. The remaining $50,000 can be put in a life-goals product such as the Capital and Credit Individual Retirement Account or IRA,” Domville advises.

“This is very important since John will be self-employed. After the initial deposit, he can contribute a minimum monthly amount of $1,000. As his business progresses, he can deposit more – up to a maximum of 20 per cent of his annual income tax-free,” she adds.

Once John has taken care of retirement, the experts at Capital and Credit advise him to concentrate on his mortgage.

“The next thing he should do is contact his mortgage provider,” says Dawn-Marie Brown, corporate credit manager at Capital and Credit Merchant Bank (CCMB). Brown says the mortgage company might be able to help.

“He could seek a moratorium. That holiday from making payments could give him three months or so to sort himself out,” she adds.

family budget

The next impor-tant step, she suggests, is for John, along with his wife and children, to create a family budget for the next three to six months. The budget should include essentials only, Brown stresses.

The CCMB executive recommends that John consider how to make the most of the money he has left.

“He can place the remaining $400,000 in savings instruments that allow him to earn excellent rates, and at the same time, provide him with the working capital he’ll need for his business,” Brown explains.

She offers Capital and Credit facilities that could suit him. She advises him to split the money in half, putting $200,000 in a Capital Super Saver account, and the other half in a Capital Investor Plus Account, or CIP. The money in the Super Saver would earn 14.25 per cent per annum and interest is calculated daily and credited monthly, she explains. According to Brown, the other half of the money in the CIP would allow John to borrow against his own funds.

“He gets the money he needs to start his business, while earning 12.75 per cent interest per annum,” she states.

Brown adds, “CCMB also offers its clients the option of paying back only interest for up to 12 months. As his business starts to grow, he can begin to pay down the principal from income earned from the business,” she says.

Dawn Marie Brown

Brown also has advice for how John should proceed with any business venture.

“I recommend that before he attempts to start a business, he does a proper business plan. Speak with an entity such as the Jamaica Business Development Corporation, which is geared towards providing technical assistance for new entrepreneurs,” she suggests.

Stacy-Ann Smith, Gleaner Writer