Weather The Storm: Financial Advice for Post-Layoff Recovery
Prioritise debts based on high interest rates, outstanding balances, or creditor terms so you free up more cash in the later months where the cash crunch is higher
Amongst talks of recession and the fear of layoffs, an alarming portion of Indians aren’t prepared for financial crisis. According to a survey by Finsafe, a finance education organisation, 53 per cent of respondents said they were worried about not being prepared for expenses in case of job loss and 77 percent of respondents aren’t prepared for medical emergencies.
While we hope this day never comes, here’s a few ways you can safeguard yourself in case you lose your job.
Emergency Fund
The basic method to prepare for financial distress in case of a job loss is to build up an emergency fund separate from the regular savings. Experts suggest consistently putting aside a portion of your income towards an emergency pool to access in case of dire need and unforeseen emergencies.
This fund should have enough to provide a three to six months of runway. A note of caution, if this fund is held in a savings account, be aware of restrictions on the number of monthly withdrawals allowed to avoid incurring additional fees.
Insurance
The Finsafe survey also uncovered that most people are either reliant solely on employer-provided health insurance for medical coverage or do not have any health insurance. Medical emergencies can be a huge burden. It is critical to ensure adequate coverage to take care of your loved ones regardless of your employment status.
Even if laid off, paying your medical insurance premiums on time is crucial.
Budgeting and Prioritising
EMIs, education fees, insurance premiums and other overhanging costs can be overwhelming without an income source. Remind yourself that this is not a permanent situation. Like regular expenses, EMIs and insurance premiums need to be factored in. So, make a list of all payments that you need to make and cut down drastically on any discretionary expenses like eating out etc.
While cutting down on expenses, you can also start taking on freelance or part-time jobs to cover your regular expenses. Having multiple income streams can cushion the impact of a layoff and maintain financial stability. Platforms such as Fiverr and Upwork are great resources to get you started.
Loans
Prioritise debts based on high interest rates, outstanding balances, or creditor terms so you free up more cash in the later months where the cash crunch is higher. Avoid using high interest credit cards as they can lead to a further strain on the pocket.
Review loan terms, looking out for provisions of grace periods and penalties for delayed payments. Loan restructuring and payment extension plans could be options to explore as well.
While it is a quick fix to take on an additional loan to cover your existing costs, it is not recommended. It could backfire by adding to the laundry list of dues you already have to repay, cascading into a dangerous debt cycle.
Says Madhupam Krishna, Chief Business Officer, WealthWisher, a financial planning firm, “Loans against personal assets could result in loss of assets in case you are unable to repay them, as well as add significant impediment to your long term financial goals. Also be mindful that if the value of these assets go down then the lender might liquidate it to make up for the difference.”
Investments
If your emergency fund has been exhausted, encashing long-term investments may be considered. However, experts strongly advise taking this step only as an absolute final resort. First turn to your long term debt portfolio.
Says Abhishek Kumar, Founder, SahajMoney - a financial advisory firm, “We advise to start with their fixed deposits, then their debt mutual funds and finally partial withdrawals from other investments such as EPF, PPF, etc. Funds invested for retirement goals can be withdrawn after that for the time being.”
Says Kumar, “Continuing with SIP while using your emergency funds is not advised. Most SIPs come with an option to pause the instalments. Once you’re back on track, first replenish the emergency corpus and then re-start SIPs.”
On a similar note, Krishna says “Exercise this option with caution and a self-promise to replenish when you bounce back, even if it is initially in smaller amounts, as pausing your SIPs could delay attaining your future goals”.
While job losses can be stressful, with proper planning and well defined priorities you can tide over these difficult times with ease. Consulting an expert can help you make a more concrete and fool proof plan.
