Using your savings and investments after job loss: what to draw on first

Start with a number, not a feeling

Job loss makes people want to either hoard every dollar or fix the problem fast by selling something. A short, calm look at the numbers helps more than either. Work out how much you need each week to cover essentials (see the emergency budget guide), how much you'll get from wages, a benefit or part-time work, and the gap between them. That gap, multiplied by the number of weeks you might be out of work, is what your savings and investments may have to cover.

The Money Runway tool on this site does this arithmetic for you. Then you can decide what to draw on, in what order, and how much is left as a cushion.

The order people commonly draw on money, and why

There's no single right order, because it depends on your fees, your tax position and how long you expect to be out of work. The usual logic is to use what is cheapest and easiest to get at first, and keep what is locked in or can fall in value for later. Sorted describes the trade-off like this: money in a savings account is low risk but pays little, term deposits pay more but tie the money up, and shares and other investments can lose value, which is why they suit longer-term goals.

A cash cushion matters more than usual when you're out of work, because you may need money on short notice for a bond, a car repair or a gap in income. Selling investments at a bad time to cover a small shortfall can be more expensive than it looks, so many people keep a few months of essentials in an accessible account and think carefully before touching anything else.

Breaking a term deposit

A term deposit is a contract: you lend the bank money for a fixed period, and Sorted notes that sometimes you can't withdraw during the term, and when you can, you get paid a lower rate of interest. The rules differ by bank, so don't assume. As one example, Kiwibank's published terms say you must apply to break the deposit and the bank has to agree, that you get no interest if you break in the first 30 days of a standard term deposit, and that after that the interest on the amount withdrawn is reduced. Other banks may charge a fee or require notice instead or as well.

• Ask your bank how much notice it needs, what the early-break penalty or reduced rate will be in dollars, and whether it will waive or shorten notice if you're in hardship.
• Compare the cost of breaking with the cost of the alternatives, such as borrowing for a few weeks. If the deposit matures within a few weeks, waiting may cost less.
• If you hold a term deposit inside a PIE (a managed-fund style deposit), the terms can differ again. Read the product's own terms.
• Get the answer in writing, and break only the amount you need if the bank allows partial withdrawals.

Managed funds and shares

Sorted's guide to shares says prices can rise and fall like a rollercoaster, that you only make a loss or a gain when you sell, and that shares are generally better as a long-term investment, at least a decade. It also warns that you want to be comfortable with big drops without panic-selling. That matters after job loss, because you're under pressure to turn investments into cash at exactly the time prices may be low.

• Ask the provider or broker what fees apply when you sell, and how long it takes for the cash to land in your bank account.
• Selling can create tax in some situations, and a lump-sum gain can affect your income for the year. Read the tax guide below before selling a large holding.
• If you hold a mix, partial sales may let you raise cash while leaving the rest invested. A free financial mentor or a registered adviser can talk through the trade-offs for your holdings.
• Be wary of anyone who contacts you offering to 'rescue' your investments. See the scams guide.

What not to do

• Don't sell everything in a panic. Selling after a fall locks in the loss. Work out how much cash you actually need first.
• Don't borrow on a credit card, buy-now-pay-later or a payday loan to avoid cashing in savings, if the borrowing will cost more than the penalty. See the BNPL and payday loan guide.
• Don't make big new commitments, like a large purchase on finance or a new investment, until you know when income is coming back.
• Don't lend your savings to family or friends without the terms in writing, and don't guarantee someone else's loan.
• Don't let a cold caller or an online 'adviser' convince you to move your money. See the scams guide.

Cashing in versus borrowing

Neither is automatically better. It comes down to the cost of each route and how long you'll need the money.

If you're thinking of borrowing, MoneyTalks can help compare the true cost of options for free. Phone 0800 345 123 or text 4029.

How your savings can affect Work and Income help

Different Work and Income payments test your money differently. Here is what Work and Income's own pages say:

Work and Income's staff guidance describes cash assets as assets of you and your partner that can be easily converted into cash. It lists money in bank accounts including fixed and term deposits, shares, stocks and bonds, and net equity in property or land that isn't your home. It excludes your home and its land, a private-use vehicle, personal effects, and funds locked into KiwiSaver and other retirement schemes.

Spending your savings on essentials is not a reason to avoid asking for help. If you're close to a limit, ask Work and Income how your assets are counted and whether any payment would still be available. The stand-down guide covers how redundancy payments affect when a benefit starts.