The Indian economy is going through a tough phase. The downturn has affected most industries. Businesses across the board are cutting costs and letting employees go. This isn’t good news for anyone. However, losing one’s job is often the unfortunate outcome in such times. Therefore, to deal with the uncertainty, one should always be prepared – even if one is in a stable job. Losing your job is financially and emotionally stressful. So ensure you take the below mentioned financial steps before a job loss hits you.
Prepare Yourself For The Worst
No one can predict the future. With reports of job losses making the news daily, it would be wise to take pre-emptive measures to prepare for unemployment at some stage. With an economic recession imminent, your finances will be affected in some way. Why not prepare your household budget in advance so that you sail through this phase smoothly? Improving savings, cutting back discretionary spending, and working to a tight budget is a must, and will help you develop financial discipline for tougher times.
Have A ‘Lay Off Fund’ In Place
It may not appear important when you are in a stable job, but it is wise to build a ‘Lay-Off’ fund. As the name suggests, it will be your financial cushion till you find another job. The lay-off fund is your emergency fund, meant to bail you out in tough times by taking care of your necessary spends and debts. Factor in your primary expenses like rent, EMIs, children’s fees, etc. and create this fund which should ideally be 3-6 times your present income. You can save this money in recurring deposits, fixed deposits or invest your money in liquid mutual funds where immediate liquidity is available along with a moderate rate of return. Follow the golden rule of never touching this fund for anything apart from emergencies.
Reduce Your Debt Burden
While sweeping away your debts in one go may not be possible, you can take steps to reduce the burden. If you don’t an emergency fund, you’ll have a problem paying your EMIs. Not paying your EMIs is not an option because it will create a host of other problems for you. Therefore, take pre-emptive steps such as reducing your loans periodically through part payments. Work with your lender to explore options such as reducing your EMIs or increasing your loan tenure, or even an EMI holiday is available. You can return to your original repayment plan once your financial situation is stable again.
Assess If You Are Insured Adequately
Insurance is a necessity and one should get some essential covers as soon as they start earning. Employers provide group health insurance covers to their employees. But a job loss would put an end to such benefits. In such a scenario, you can fall back upon the insurance plans bought by you. A term insurance and health insurance plan are a must as they will protect you and your family during emergencies. You would not want to lose your saving or emergency fund to hospital expenses during a job loss. Also, term insurance will help your family financially in the event of your untimely death.
Do Not Stop Your Investments
It is often seen that during pressing times, we tend to exit our investments and compromise on our financial goals. This is not a good practice. You may not be in the same trying situation forever, so do not liquidate all your investments. However, do review your investment portfolio when you are in a difficult situation when you have no regular income. Decide about the flow of your savings into investment as per expenses needed for maintaining a certain standard of life. But do not liquidate your long-term investments and continue with them if you can manage. It is important here, thus, to create a big lay-off fund to keep yourself going.
Besides all this, be prudent while using credit tools like a credit card. You would require a credit card after a job loss for borrowing for necessary spends. So exercise caution while using a credit card and keep a track of your expenses. Also work on developing your skills so that your career prospects improve and you come out stronger on the other side of this downturn.
The writer is CEO, BankBazaar.com