What should I do with my redundancy money?

Many redundancy payments are relatively modest, and will only help tide you over until you get another job. But with long service or a redundancy payment greater than the legal minimum, you may get a tidy sum. A redundancy cheque might be one of the biggest amounts of money you have received in one go, and it can be very tempting to spend it!

If you know you have another job to go to, this may be reasonable. Or you may want to use the money to take time out from working while you study or retrain for a new career. Other people may want to use the money to set up in business. Others may want to consider themselves as retiring early.

But you should think carefully about your financial situation and take advice before making any hasty decisions, and with significant sums of money it would be a good idea to consult an independent financial advisor.

Typical advice would be to first put your redundancy payment into a high interest savings account while you consider what to do. Many newspapers carry tables that show the accounts paying the best rates. They may well only be available via the Internet or by post, rather than your high street.

The next step may be to look at your debts - such as credit cards and your mortgage and consider paying these off, as the interest on them is likely to cost you more than you would get in interest on your savings.

After that if there is any money left over, you will want to save it in a way that helps your long-term security. You are likely to be advised to keep some in an emergency fund that you can get at easily, with the rest in longer term savings that minimise the tax you have to pay.

But what you should do will really depend on your own circumstances. That is why you should take independent advice if you get a sizable redundancy payment.