An emergency fund is meant to keep you going through situations such as loss of regular income. Ideally, it should be six to twelve months of your current monthly income, kept in a risk-free and liquid instrument such as a fixed deposit.
It’s rarely easy dealing with the loss of employment. However, with some smart money moves, your life can remain on track financially as you try to get back to the work force.
Here are some ideas to consider before and after a job loss.
Start building an emergency fund
An emergency fund is meant to keep you going through situations such as loss of regular income. Ideally, it should be six to twelve months of your current monthly income, kept in a risk-free and liquid instrument such as a fixed deposit. This money is not to be put to any other use except meet your fixed expenses such as rent or EMIs, children’s tuition fee, utilities, groceries, supplies, and healthcare – basically, all your regular fixed and variable money needs.
Don’t rely on your employer-provided health insurance alone. Always have your own, independent health insurance policy for your whole family. This will protect you against health emergencies at any point you’re without your employer-provided insurance. If you have dependents, you should buy a term plan. Your job loss could also be due to accident or disability. These can be insured against as well at low costs.
Use your settlement wisely
After your job loss, make sure you’ve collected your severance package and all dues. Your severance may be worth at least a month’s pay. You can use this money judiciously during the layoff as you begin finding a job. Unless you really need it, resist the urge to liquidate your PF holdings—it’s a long-term investment meant to provide you a fixed income in retirement.
Liquidate savings & investments judiciously
Assuming that you’re at a stage where your emergency fund is running low, and you’ve burned through your severance pay, you need to take stock of your savings and investments. Resist the urge to withdraw all this money at once. Let your investments be, and withdraw them in a calibrated manner as per your needs. If you find employment again, put the money back in their investments.
You’re going to find it difficult to live the high life without an income. So be careful how you spend your money. Differentiate between needs and wants. Reduce the wants, for they are unlimited. Cancel or reduce any discretionary spending such as online subscriptions, eating out, buying gadgets, or travelling for leisure. Being without a job may give you a sense of independence. But no matter what the glossies tell you, ditching your career to travel the world is a bad idea.
Intimate Your Lenders
If you’re repaying a loan, you may be bound by contract to inform your lender about a change in your employment status. If you’re able to continue paying your EMIs, do so. But if you are struggling, work with your lender about increasing your tenure, lowering your EMIs, or any other way the loan can be restructured. Watch your credit card use; if you use it, settle your dues on time, because card interest rates are very high.
Use Insurance Grace Period
Most insurance companies offer you a 30-day grace period in which you can make your premium payments without lapsing your policy. If you’re struggling to make your premium payments, you can safely use this grace period. Ideally, you should contact your insurance provider to understand the terms and conditions of your policy.
Dispose Your Assets
This would be an unpleasant phase of your unemployment phase, but if you’re terribly short of cash and rich on assets, you could consider selling them. Any item lying around the house that you don’t need—be it gadgets, furniture, books, etc.—can be sold for meeting short-term cash needs.
Take a loan
Finally, borrow a little bit of money from friends and relatives. Ask for easy repayment terms, and pay them back when you get back on your feet. If you have the financial discipline, try taking a personal loan, or using your credit card to its maximum limit. Be wary of this option since you’re at risk of depleting your already thin finances by taking on the liability of a loan.
(The writer is CEO, BankBazaar.com)