How to invest your redundancy money

Redundancies often come with the consolation of a substantial payment. For many people, this may be the largest cash amount ever had in their lives. Should you resist the temptation to spend your redundancy money on a luxury car or a completely new wardrobe, you can think about investing it.

Think to boost your pension

You always have to remember that only the first £30,000 of your redundancy money is tax-free. If you have an agreement with your employer and are expecting a payment in excess of this sum, there is a way of avoiding payment of bigger taxes is to ask your employer to pay a part of your redundancy payment into your pension fund instead of giving it to you directly. It is not mandatory that your employer does agree to do this, but most employers will. A certain amount can also be paid by you directly into your pension fund and it is tax-free also. Later on, you can take a lump sum back out of your pension, and it is again tax-free. This option is to be considered only if you need a part of this money, otherwise it is better to let them in the pension fund.

Pay your debts using your redundancy payment

Before thinking of investing in shares or anything else, consider first using your redundancy payment to cancel any debts you have. It does not make any sense to put your money into a savings account earning you 6% per year while you are paying 18% per year for substantial credit card debts, for example. If you have a mortgage, consider paying it off. Paying off debts does not have to be always the best thing to do. You should always think about whether you are going to need some money as working capital in the near future, to start a home based business. Or maybe you have to relocate to find another job and will need some money for this purpose.

Opportunities to invest your redundancy money in

First of all, you should put your lump money into a high interest savings account. Then you can think about what else to do with that money. If the sum is significant enough, you should talk with an independent financial adviser to recommend you the best investments possible. Such opportunities still exist, although interest rates are low these days and investments do not look better either. Qualified advice is needed due to numerous risky opportunities where you could easily lose your money. Independent Savings Accounts (ISA) is excellent tax-efficient savings instruments, and is available in a variety of forms that suit your requirements. Sums you is however limited. If your redundancy payment is large enough, you may think to invest in shares or property.

Prudence is the key

Temptations of spending your redundancy money on things like luxury cars or cloths will certainly haunt you, but you have to be rational and not risk your future and your family’s. There are certainly far better ways to invest your money. Consider your options attentively, and perhaps consult an adviser, in order to find out what opportunity fits your best.