Thanks for everything... now are you ready for redundancy?

People haven't saved enough cash to see them through in the event of a possible redundancy, says Jeff Matthews, senior advisor at the financial planning company Spicers.

"I don't know anybody who saves on the eventuality that they may be made redundant. They'll just use their credit card or overdraft facility or home equity to muddle through."

In fact, Matthews says most New Zealanders are already in a precarious financial position anyway.

"Our household balance sheets are extremely unbalanced compared with overseas markets," he says.

If there is an economic downturn and people start to lose their jobs, Matthews says it's the younger people with new homes who will be especially impacted.

"If you lose your job and you're carrying $400,000 worth of debt - and the mortgage you had a couple of years ago at 6.9 per cent is now sitting at 8.3 per cent - then you're vulnerable."

Rather than saving, Matthews says younger people are busy trying to get out of debt.

"Today you've got people who are still in debt at 30 through student debt or whatever and then they're trying to get together enough capital to take out a mortgage."

That's not the way it's supposed to be. Matthews says workers should have at least two to three months' worth of living expenses stashed away in a cash reserve for emergencies such as a redundancy. The old advice was to have a year's income set aside but the skills shortage has changed that requirement.

"Getting into other employment shouldn't be a major issue. It shouldn't take a year."

But most New Zealanders don't even have a couple of months' income saved up.

"Wages or salaries just aren't high enough in New Zealand."

Matthews says the government is not providing any real incentives for people to save anything.

"In the old days there used to be savings accounts, especially to encourage kids to save, that really weren't taxed. But now everything gets taxed at source. The banks just take out the interest and give it to the government and you get paid what's left."

It might be comforting to have a nest egg in case you're made redundant, but Matthews says the math just doesn't stack up to justify the savings.

"Why would you bother saving?"

The buoyant job market is also deterring workers from saving.

"We've got a really tight labour market. So, it shouldn't really be too much of a problem for somebody to get back into another job fairly quickly unless they have specialised skills. It's not like we've got 10 per cent unemployment. We've got less than four per cent."

The lack of any really significant redundancies in the last 15 years may be another reason saving is not a high priority.

"People haven't really bought into the mindset of paying yourself first. You pay you're taxes, mortgage, living expenses and then you look and see if there is anything left over to save."

But for those who want to save, Matthews has some tips.

"The reason it's hard for people to sustain a savings pattern is that they don't have a clear goal," he says. "A clear goal is to be mortgage free by 50 or to get X amount of dollars. You need those targets to keep you on the straight and narrow."

Another tip is to have your savings automated. Let your employer or the bank put 10 per cent of your pay into a savings account before you ever see it.

"Once you get started and you get into a routine, it's relatively easy. It's just the first step."

Matthews says it's OK to put your savings into your mortgage but unfortunately for most people that money is not being saved.

"People now seem to be using their mortgages just like a revolving credit facility with no real intention of paying the mortgage off because they're never really going to stay in the same house forever so why bother about paying it off."

Matthews suggests raising your mortgage payment with your next pay rise so you can pay more than just the minimum repayment amount and not feel it as much.

But for people who are caught unawares and find themselves redundant with little or no savings, the consequences can be devastating.

Reece Notton, principal consultant at Grafton Consulting Group, advises people who have lost their jobs and agrees that most people are not saving.

"You've got people who are at the back end of a career and maybe have got themselves sorted in terms of savings, but by the same token you get people who are at the beginning or middle of their career and there's been absolutely no thought for the back end of it. It's live for today."

Notton also agrees that the government's broad taxation policies are not helping the situation.

"There are not the financial incentives out there to save. You don't get any tax rebates or any kind of incentive like that."

Some people who are made redundant will find themselves in quite severe financial difficulties and a redundancy payout is not going to be enough, Notton says.

"For the majority of people who are made redundant these days, they haven't been with an organisation long enough to build up anything in terms of a reasonable redundancy payout."

Notton says if you do get a good payout, don't go out and buy a new car or pay off any debt.

"Don't do anything rash. If you've got a redundancy payout, just put it in the bank and just leave it there until such time as you've gone through the emotional hurdles and you've got time to think quite clearly about where you want to go and what you need to do."

People who say they want to volunteer for redundancy to get a payout should think about it long and hard.

"You'll get a lot of people who will say, 'If there are redundancies going around, I'd like to put my hand up'. But in actual fact when it does come around and they do put their hand up, it's still one hell of a shock."

Notton also says that redundancy always seems to come at a bad time in a person's life.

"Usually when somebody's been made redundant it's hardly the only thing happening in their life that's not that flash at the time. I guess it's a little bit of Murphy's law."

When it happens, the best thing to do is to get good, professional, pragmatic financial advice, Notton says. People should not feel invincible because redundancy is still a fact of life even in the current economy.

"Organisations will change shape. Even in good times, even when business is really good, organisations will take the opportunity to say, 'OK, we've got the money now. Let's reshape this part of the business'. Redundancy is always going to be a part of business life. It's never going to go away."