How to manage your personal finance amid layoffs

In the current environment, the risk of losing one’s job only seems to be rising. Across the globe including in India, for the last several months, companies have been announcing layoffs, amid an uncertain economy.

Since 2022, over 25,000 employees have been let go by Indian startups, according to Inc42. According to the website layoff.fyi, which keeps track of layoffs, more than one lakh employees were laid off in the first few months of 2023 and about 1.4 lakh people were laid off globally in 2022.

Now, more than ever, it is becoming increasingly important to ensure one is financially prepared in case of such an eventuality. So, what can you do to prepare for such a situation?

Create a contingency fund
Financial Expert, Kalpesh Ashar believes everyone should have a contingency fund or an emergency fund in place. This emergency fund serves as a safety net in case you lose your job. Its a fund you can dip into to meet your daily expenses, when your regular monthly income has been affected.

The ideal amount to keep in an emergency fund is at least six times your regular monthly required expenses. This will allow you to tide over at least 6 months without a regular job. However, Ashar says, the larger your emergency reserve, the better your safety net is.

While calculating your emergency fund corpus, be sure to include all your recurring monthly obligation such as rent, utilities, insurance premium, school fees, EMIs etc.

Health Insurance
A personal health insurance cover is an absolute must. Depending only on your employer’s insurance is definitely not advisable. Investment Expert, Karthik Jhaveri says, people tend to spend a yearly insurance premium on a casual night out with friends but end up cutting back on getting insurance. Health insurance gets you covered for an entire year and the premiums are not so much that they would burn a hole in your pocket, he adds. Trying to save money by cutting back on health insurance is a bad idea. In fact, its better to get a personal health cover and pay off the premium while you still have a steady monthly cash flow coming in.

In the eventuality that your fear of losing your jobs becomes a reality, what should you do?

Assessment of you savings & expenses
First, examine the money and savings that you already have. Ideally, you've planned for this eventuality and have an emergency fund that’s available to you, until you find a new job.

Next, you should evaluate your expenses.
Which of your expenses are optional or discretionary? Can you cut them out for the time being?

Now, assess the cost of your basic needs – housing, food, transportation, medical care etc.

Make your debts a priority
Next, you should examine your debts. Do you have the money to pay them off over the next few months? If you don’t, you need a plan B. For instance, if you have debt from multiple lenders, such as banks and/or family members, consider talking to them about your circumstances and deferring their interest payments rather than missing EMI payments, suggests Kalpesh Ashar.

Divert your routine investments
Karthik Jhaveri recommends diverting investments into paying EMIs. If you frequently invest or make contributions to a retirement plan, you should determine if you can continue to do so, or if you need to stop them to pay off your EMIs, temporarily.

Another option is to dissolve your SIPs or recurring deposits temporarily and divert them towards paying off your loan. It’s also important to keep in mind that most investment instruments offer flexible payment methods, so as soon as you get back to earning a regular income you can, and must replenish them.

Taking a personal loan
This must be an absolute last resort and only if you’re completely out of options. If your savings and emergency money are insufficient, you may need to explore other sources of funding. But, opting for a personal loan could drag you into a vicious debt cycle. Added to that it is difficult to secure a small loan, just to pay off your EMIs, says Karthik Jhaveri.