The four numbers a budget planner has to answer
Any redundancy budget plan, on paper or in an app, has to answer the same four questions: how much money is in the pot, how much do you spend each month, how many months does that buy you, and what can be cut without changing the basic shape of your life. The rest is detail.
A practical sequence is to work out the net pot first (after the tax breakdown on the settlement letter), then your essential monthly spend, then the runway in months, then the discretionary spend that could be cut to extend the runway if needed. The redundancy runway calculator and the redundancy tax estimator do the maths for the first three.
Step 1: work out the net pot
The headline figure on a settlement letter is gross. Until you know what hits the bank account, the monthly plan is theoretical. Three components typically appear: statutory redundancy, ex-gratia and PILON, with accrued holiday added on top.
Statutory redundancy and any ex-gratia portion are tax-free up to a combined £30,000. PILON is taxed as earnings under the post-2018 PENP rules. Accrued holiday is taxed as earnings. The settlement agreement calculator breaks this down by component. The net you see in the bank is what the rest of this page works with.
Step 2: map essential spend
Essential spend is what you must pay each month to keep a roof over your head, food on the table and the household running. Mortgage or rent. Council tax. Utilities. Food and household basics. Insurance (home, life, anything required by your mortgage). Childcare or school costs. Minimum debt repayments. Pet costs. Public transport for essential journeys.
Pull the last three months of bank statements and highlight every recurring transaction that fits that definition. Add them up. The result is the floor — the minimum monthly outgoing you cannot avoid in the short term.
Almost every household discovers small surprises here. Streaming services, gym subscriptions, app subscriptions and charity direct debits often accumulate to £100 to £250 per month without conscious awareness. The discretionary review in Step 4 deals with these.
Step 3: calculate the runway
Runway is net pot divided by essential monthly spend. £30,000 of net redundancy money on £2,000 a month of essentials gives 15 months of runway with zero discretionary spend, or roughly 10 months with a sensible amount of discretionary.
That figure is the headline number for every subsequent decision. If it comfortably exceeds the realistic length of your job search, the focus shifts to longer-term planning (pension top-up, investments, debt reduction). If it falls short, you have a defined gap to close, either through spending cuts or stop-gap income.
Step 4: define discretionary spend
Discretionary spend is everything outside the essentials. Streaming, eating out, take-aways, hobbies, holidays, new clothes, gifts, charitable giving. None of it is unimportant; all of it can flex in the short term.
Draw a line under three numbers: current discretionary, sustainable discretionary (what you could comfortably live on for a few months), and minimum discretionary (what you would cut to in a pinch). The gap between current and sustainable is the easy first cut. The gap between sustainable and minimum is the emergency lever.
The honest version of this exercise is hard. Most people underestimate current discretionary by 30 to 50%, because small repeat transactions add up. Reviewing three months of statements rather than working from memory is the only way to get an accurate baseline.
Step 5: pay yourself a monthly salary
Move the runway money to a separate high-interest easy-access savings account. Set up a standing order from that account back to your current account on the same day of the month your salary used to land. The standing order amount equals essential plus sustainable discretionary.
The advantage of this structure is psychological as much as financial. You stop checking the lump sum and start operating from a familiar monthly figure. The savings account compounds interest in the background. The current account looks like a normal working month. Decision fatigue drops.
Step 6: review monthly
Once a month, sit down with the bank statements and the budget. Two questions: did the monthly transfer actually cover the month, and is anything drifting outside the plan. If yes, cut. If no, leave it alone.
Most plans drift in the first three months as forgotten subscriptions surface, one-off costs (car servicing, a vet bill) hit, and discretionary creeps. Catching it monthly is the difference between a plan that holds and a plan that quietly fails.
A worked example
Sam, 38, made redundant after eight years. Net pot after tax: £24,000. Essential monthly spend: £2,150 (mortgage £950, council tax £180, utilities £210, food £450, insurance £80, minimum debts £280). Current discretionary: £1,400. Sustainable discretionary: £700. Minimum: £350.
Runway at essential only: £24,000 ÷ £2,150 = 11.2 months. Runway at essential + sustainable: £24,000 ÷ £2,850 = 8.4 months. Sam’s realistic job search timeline is 3 to 4 months, so the lower number still gives plenty of buffer.
Plan: move £25,500 into the high-interest savings account (lump sum plus a small contribution from existing savings). Set a £2,850 monthly transfer. Keep £2,000 in current accounts as a working buffer. Hold the rest of the existing savings as emergency fund. Review monthly.
What changes if the runway is short
If essential spend on its own gives less runway than your realistic job-search timeline, the standard order is: cut discretionary hard for the first two months, look at temporary income (part- time work, freelance shifts), then talk to mortgage and credit providers about temporary interest-only or payment-holiday arrangements before touching emergency savings.
For a deeper look, the can I afford to quit calculator and the emergency fund calculator model the gap. The budgeting after redundancy article covers the practical mechanics in more detail.
Useful calculators
- Redundancy runway calculator — runway maths in seconds.
- Redundancy tax estimator
- Settlement agreement calculator
- Emergency fund calculator
Authority resources
From the same cluster
- Monthly expenses checklist after job loss
- How long will my savings last?
- Creating a financial safety net
- Living on redundancy pay
Frequently asked questions
- How do I budget redundancy money?
- Start by working out the runway target (months you need the money to last), separating essential spend from discretionary, and ring-fencing enough of the lump sum to cover essentials for that period. The remainder splits between an emergency buffer and longer-term decisions. Most people benefit from moving the runway money into a high-interest easy-access account and paying themselves a monthly transfer that mimics salary.
- How long should redundancy money last?
- Plan for the realistic length of your job search plus a one-month buffer. For most UK office workers in healthy sectors, a focused search takes one to three months. Senior roles, specialist sectors and career switches take longer, often three to six months for the senior route and six to twelve months for retraining-led switches.
- Should I budget gross or net?
- Net. The £30,000 tax-free allowance applies to statutory redundancy and ex-gratia only. PILON and accrued holiday come through PAYE as earnings. Build your monthly plan around the net amount you actually receive in the bank, not the headline gross figure on the settlement letter.
- Do I need a budgeting app?
- Not strictly. A spreadsheet works. The benefit of an app is automatic categorisation of bank transactions, which makes it easier to spot creeping subscriptions and discretionary leakage that you'd miss in a manual review. The point is the discipline of looking at the numbers, not the tool.
Some links on this page are partner links. They don’t change what we recommend, and we don’t accept payment for editorial mentions. Recommendations are based on what we’d suggest anyway; the partner relationship just means we sometimes earn a small commission when you sign up.