The Buyt Desk
Job losses are quite challenging to deal with because you will face a dry spell of no regular income for a while. You can successfully sail through this difficult time using some smart moves if planned properly. But, make sure you don’t stop your EMIs (equated monthly installments) and keep your PPF (Public Provident Fund) and EPF (Employees’ Provident Fund) untouched.
Here are some ways you can better manage money matters when you lose your job.
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Make use of emergency corpus
An emergency corpus is one of the essential building blocks of effective financial planning. Between 6 and 12 months of household expenses are recommended along with EMIs as an emergency corpus. This corpus can be kept aside in short-term FDs (fixed deposit), in a liquid fund, or your savings account. Ensure that you use existing emergency corpus just for your total immediate requirements such as medical, food, insurance premiums, and more. For example, skip paying your society maintenance costs for some months. Dip into your emergency corpus until you get another job.
What if you don’t have emergency corpus?
If there is no emergency corpus, then attentively review your present portfolio. There might be multiple traditional insurance plans that you no longer need or regularly underperforming mutual funds. There may be a portfolio with several liquid fund investments, each having a negligible amount. Combining these liquid fund investments can make a neat share that can be an emergency corpus.
You can even sell unnecessary physical gold to build a contingency corpus. It will prevent you from making hurried decisions during financial emergencies.
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Keep a track of your spending and budgeting
When you lose a job, limit your spending, particularly on non-essential things. Keep checking for leakages. Budgeting provides a hold on things financially and deciding where to invest the money you currently have. For example, school fees, EMI payments, credit card dues, and utility bill payments can’t be ignored.
Avoid spending money on eating out, vacation trips, and electronic appliances for some months till you again start receiving a regular income. Openly communicate your lob loss and expenses required to be limited in line with a revised budget with your family members. It would help you in preventing multiple unwanted expenses contributed by family members in a month.
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Review financial goals
The temporary job loss usually does not affect your long-term financial goals. But, when it continues for about 6 or more months, review these goals. Also, review short-term goals because these are coming up right away. Be careful about how effectively you can finance them. Do not continue with your SIPs from emergency corpus as it will be unwanted cash spending. Find other income sources like contract-based consulting jobs or freelancing assignments.
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Keep PPF and EPF untouched
Do not touch your investments reserved for your retirement like PPF, EPF, etc. That’s because it can affect your retirement kitty in the long term. Avoid withdrawing your retirement corpus for short-term goals during the job loss stage. Prefer withdrawing from your EPF or PPF corpus as the last option just to repay the high-interest rate debts, prevent defaults, and meet medical emergencies.
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Manage loan EMIs and credit card debts
Don’t miss your loan EMIs and credit card bills. This is because there are up to 48% yearly interest rates on credit cards and up to 16% interest on personal loans. Hence, make sure you timely pay the credit card bill and loan EMI before the due date. Stopping these payments will result in penal interest and penalty. This will dip your budget in an existing cash-tight situation.
The right way to prevent credit card bills is to spend less. Stop your credit card use till you start receiving regular income. Don’t stop repaying EMIs immediately after losing a job. Keep on paying your EMIs for a minimum of 3-6 months from a contingency corpus. However, if you still can’t get a new job, consider other options. For example, discussing enhancing a loan tenure or applying for a loan moratorium to a bank.
Note that considering the increase in the loan tenure or a loan moratorium could maximize your interest costs over time. So, consult an expert first.
