The worst time to decide what to do with your redundancy money is the week you get it

There are two versions of this conversation and I have had both more times than I can count.

In the first, somebody has planned their exit. They have known for months, they have a number in mind, and they want to talk about what comes next. That is a good conversation to be in.

In the second, somebody walked into a meeting on a Tuesday morning and walked out unemployed. Nobody saw it coming, least of all them. A few weeks later a sum of money lands in their account that is larger than anything they have had sitting there before, and it arrives attached to the worst professional week of their life.

That second conversation is the one this post is about, and it is the reason I built something.

Shock is a terrible financial adviser

Redundancy does something specific to people. It is not just the money, and for a lot of people it is not mainly the money. It is the sudden loss of the thing that answered “so what do you do?” at parties. It is the suspicion, however unfair, that you were picked. It is the diary that was full on Friday and empty on Monday.

And into the middle of that lands a lump sum and an unspoken expectation that you will now do something clever with it.

So people do one of three things, usually within a fortnight, usually on instinct.

Some take the money as permission to finally start the business. The anger helps. There is nothing like being let go to make working for yourself look like the obvious answer, and I have watched people commit their entire payout to an idea they had never tested on a single paying customer.

Some put it all into investments, because that is what you are supposed to do with a windfall, and then discover eight months later that they need that money for rent and the market has had a bad quarter.

And some do nothing at all. The money sits in a current account earning nothing while they take the first job they are offered, at a salary they would have laughed at a year earlier, because the balance going down frightens them more than the job bores them.

All three are understandable. All three are decisions made by somebody who has not yet had a quiet hour to think.

The question almost nobody answers first

Here is the thing I always try to get people to work out before anything else, and it is not what to do with the money.

It is: how many months does this buy me?

Not how much is it. How long is it. Take the payout, add whatever savings you would genuinely be willing to use, subtract what it actually costs to keep your life running each month, and factor in anything still coming in, including whatever you can claim. The answer is a number of months, and that number changes everything about what you should do next.

Eleven months is a different life from four months. Eleven months means you can afford to be selective about the next role, or test a business idea properly before committing to it. Four months means your first job is to stop the clock, and everything else waits.

Most people have never done that calculation. They know roughly what landed and roughly what they spend, and the gap between those two rough numbers is where all the anxiety lives.

It was never a choice between three things

The other mistake is treating this as a single decision with one winner.

Rest, business, investment. People talk about these as though they are mutually exclusive, and they are not. The sensible answer for most people is some of each, in proportions that depend entirely on their own circumstances. A few months of living costs so you can breathe and choose well. A ring-fenced amount for the business idea, sized at what you could afford to lose rather than what the idea might need. Something put away for later, but only money you genuinely will not need soon.

Framed as a split rather than a choice, the whole thing becomes less frightening. You are not betting your family’s security on one answer. You are allocating.

The boring part that comes before any of it

There is an unglamorous bit that has to come first and it gets skipped constantly.

Clear expensive debt. Credit card interest will outrun nearly any return you are going to earn, and paying it off is a guaranteed gain in a situation with very few of those. Keep an emergency fund that you do not touch, separate in your head from the money you are allocating. And claim what you are entitled to, immediately, because people routinely do not. In the UK, New Style Jobseeker’s Allowance is not affected by your savings, so having money in the bank does not disqualify you, and a surprising number of people assume it does and never apply.

One more, for the UK specifically, because it catches people out every time. The first £30,000 of a redundancy payment is normally free of income tax and National Insurance. That figure is unchanged for the 2026/27 tax year. But notice pay and holiday pay do not get that treatment: they are taxed like ordinary wages. So the number on the letter and the number that reaches your account can differ by more than you expect, and the plan you made on the first number falls apart.

In the US it is harder again, because severance is fully taxable, typically with 22% withheld at the federal level before you see any of it, and there is a 60-day clock running on your health cover from the day the old plan ends. That deadline does more damage than the tax does.

So I built the thing I keep explaining

I have had this conversation enough times that I eventually wrote it down as a tool rather than repeating it. It is free, there is nothing to sign up for, and it is called Next Step.

It takes about five minutes and walks you through five short steps on a single page.

You start with your money: the payout, savings you would actually use, what your essentials really cost, anything else coming in, debts, and what you expect to claim. It turns that into the number that matters, which is how many months you have covered if you do not work at all.

Then it asks seven questions about where you actually are. How you are feeling. How fast people with your skills usually find work. Whether you have a business idea, and whether anyone has paid for it yet. How long you could leave money alone. What you would do if an investment dropped by a fifth. Whether anyone depends on your income. Your age.

Then it rates each of the three paths for your situation: good fit now, possible with care, or not yet. Each one comes with what is in your favour, what to weigh up, and the first practical steps. It will quite happily tell you that starting a business is not yet, and explain why, which is the part I think earns its keep.

Then you can try splitting the money. A sliding bar divides your payout between clearing debt, an emergency fund, living costs while you rest and search, the business, and investing. Each slice tells you in plain terms what it buys, like paying your essentials for about six months. It warns you when a split looks risky, such as investing while holding less than six months of safety money. There is a cautious starting split if you want one, and you can print the whole thing or save it as a PDF to talk through with somebody you trust.

The last step is the figures that actually apply to you, and links to free, impartial help. Real organisations: MoneyHelper, Pension Wise, Citizens Advice and the National Careers Service in the UK; CareerOneStop, HealthCare.gov, the Consumer Financial Protection Bureau, SCORE and the SBA in the US.

Why only the UK and the US

There is a switch at the top for UK pounds and US dollars, and it changes the whole tool rather than just the currency symbol. Different tax treatment, different benefits, different health cover questions, different business funding, even different spelling.

I have only built those two, and I want to be straight about why. Those are the two systems I actually know, from my own experience and from the people I talk to. I could have generated something plausible for a dozen other countries, and it would have been confidently wrong in ways I would have no way of spotting. Given what this tool is for, and who is using it and when, confidently wrong is the worst thing it could be.

If it is useful and people want other countries, that is a conversation worth having with somebody who knows those rules properly.

What it is not

This is free guidance, not financial advice, and the distinction matters more than the disclaimer at the bottom of the page suggests.

The tool never says “you should”. It shows you what is in your favour and what to weigh up, and leaves the decision where it belongs. It does not know your full circumstances, it is not regulated, and it cannot account for the thing you have not told it. For a large sum, or anything with real consequences attached, talk to a regulated adviser. The tool points you at how to find one and how to check them.

It also does not want anything from you. There is no sign-up, no email capture, no account. Nothing you type is sent anywhere at all. Your answers are saved in your own browser and that is the end of it. I was not going to ask somebody in the worst month of their working year to hand over their email address before they could find out how long their money lasts.

If this is you right now

Then I am sorry, and it does get better, and almost nobody looks back on it as the worst thing that happened to them professionally. A good number of the people I know with businesses they love started them in exactly this position. Several of them will tell you it was the best thing that ever happened to them, though not one of them thought so at the time.

But give yourself the quiet hour before you decide anything. Work out how many months you have bought. Then decide.

And if it helps to have something walk you through it, that is what I made it for.