How to manage finances if you lose job

MUMBAI: When Niranjan Kedia, a national manager for human resources with an annual salary of over ₹30 lakh, lost his job, he was unprepared for it. He has experience in multiple sectors such as petrochemicals, banking, financial services and insurance (BFSI), logistics and information technology in India and overseas. However, today he has been struggling to meet old contacts and new companies to get back on his feet. Like Kedia, if you are going through something similar, remember that you are not alone. Here is what you can do to make the most of a bad situation.

REFLECT AND RE-EVALUATE

Immediately after you’ve been let go, you may find yourself experiencing a range of emotions such as panic on saying goodbye to a regular paycheck, fear of the future and worry about impending expenses. Rather than getting caught up in these, recognise that it is a normal way to feel about job loss. Take some time to reflect on reasons why you may have been let go. Was it because your work performance wasn’t up to par? If yes, evaluate your skills and how you can make your weaknesses work to your advantage.

BUDGET DIFFERENTLY

Next, you need to focus on your expenses. Look at necessities first. For instance, food, shelter, utilities, transportation and basic clothing is where you should spend your money. Creditors can wait. Cut back on your lifestyle expenses completely. For instance, home-cooked meals and movies at home should become the norm. Set up a cash flow plan and stick to it. Determine exactly how much you’ll spend on groceries, utilities, gas and other fixed expenses. Analyse whether you can do away with your variable expenses.

EVALUATE IMPACT ON DEBT

If there is no regular income, repayment of existing debt such as home loan, personal loan and credit card bills can be challenging if you don’t have a contingency plan in place. If you don’t have enough money as saving to repay debt, you can start by prioritising repayment of debt with those that have high interest. Try to pay off high interest rate debt first or transfer high interest debt to a lower rate card. Take hold of your financial picture. Prioritise your bills. It’s important to really know where you stand financially and to figure out which things are most important. When you take hold of your financial picture, you’ll realize that you can streamline and earmark money for saving.

USE SAVINGS, INVESTMENTS

Your first resort should be your savings and investments, if you don’t have an emergency fund. For unforeseen situations like job loss, you need to have at least 6-12 months expenses as emergency fund with you. These expenses include your monthly bills, groceries, equated monthly instalment outgo, systematic investment plan amount and children’s school fees. If you don’t have an emergency fund, you should dip into your savings and investment. Loan should be your last resort, as the cost of taking a loan is higher than the returns you lose on your investment. Also due to job loss, financial institutions may give you a loan at a higher cost. But if you are planning to opt for a loan, look for loans with a lower interest rate. For instance, a secured loan is likely to be cheaper than an unsecured loan. If you have an emergency fund in place, dip into it for all your expenses and continue your investment.

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