Prepare for Job Loss: Save 20% of Salary, Keep 6-Month Emergency Fund
This year, between January and June, 344 companies worldwide have laid off 99,670 employees, including Indian firms. Sudden job losses create mental and financial challenges. However, planning financial arrangements beforehand can help mitigate the impact, keeping your family stress-free.
Golden Rule… Save First, Spend Later
- Build an Emergency Fund: Always maintain an emergency fund while employed. Deposit a fixed amount from your salary into a savings account each month. Accumulate 6-12 months’ worth of expenses in this fund, which can later be invested in liquid funds or bank FDs. Use it solely for emergencies.
- Secure Personal Health Insurance: Company health insurance ceases when you lose your job, but medical emergencies can strike anytime. Such situations can drain your savings. Hence, opt for a personal or family floater health insurance policy.
- Diversify Your Portfolio: Maintain diversity in your investment portfolio. Include assets like equity, gold, bonds, and real estate. This way, if one asset class declines, another may yield higher returns. Typically, when the market falls, the value of gold rises. Allocate funds according to your needs.
- Save First, Spend Later: The golden rule advises separating savings or investments from your salary first, and then spending the remaining amount. It’s not wise to spend first and save the rest. Ensure to save at least 20% of your salary.
Post Job Loss: Actions to Take
SIP Can Be Stopped for a Period
If regular income stops due to job loss, stop all SIPs initially. Invest accumulated SIP amounts in a fixed income plan. This will provide you with regular monthly income. If there’s uncertainty regarding job prospects for a long time, gradually shift equity components of your portfolio into safer investments.
Make a List of Essential and Non-Essential Expenses
Create a list of essential expenses, including rent, EMI, school fees, utilities like electricity and water bills, groceries, etc. Spend only on these necessities. Prepare a list of non-essential expenses that can be cut down, such as OTT subscriptions, gym memberships, dining out, etc.
