How To Bounce Back From A Job Loss
A job loss can be painful but you can prepare for the worst and bounce back. All it takes is some prudent financial planning.
The uncertain economic environment is causing companies right from the leading technology giants in the U.S. to startups to lay off workers.
Even here in India, the fear of a loss of employment is being felt in many quarters. But while a job loss can be painful to deal with, you can prepare for the worst and bounce back quickly. All it takes is some prudent financial planning measures to ensure that your financial balance is not disturbed.
Build A Cash Buffer
The first thing that occurs after a job loss is the drying up of income. The biggest concern, then, is how to manage the day-to-day expenses for the individual and the family. These expenses include equated monthly instalments on loans, utility bills, and school fees.
The first part of the financial coping mechanism is to ensure that there are enough liquid funds available that will meet the normal running expenses of the house. This will be taken care of by a part of the emergency fund of the individual that has to be in a savings account or a liquid fund that is easily accessible either immediately or in a few days. This will ensure that the disruption is minimum.
The buffer will also protect long-term savings which would otherwise be dipped into.
Pulling Through Till Income Is Replaced
Having some liquid funds is just the first step. The main part is that there also needs to be adequate amounts that can last out the entire time period that the individual is without a cash flow. This means that the emergency fund amount also needs to be adequate.
This has to be able to cover the total expenses of the household for a period of at least six months and sometimes even longer. It could take some time for a person to get another job and start the income flow again and hence the presence of a large enough emergency fund will ensure that the financial pressure does not mount with each passing day. Covid-19 showed the importance of having a big enough fund.
Prioritise Expenses
While an emergency fund can take care of immediate requirements, an individual must also manage expenses. A business-as-usual approach can’t be taken. It is vital that the total expenses being made by the family is planned in detail and all the items are reviewed in terms of importance. Many discretionary expenses especially on entertainment, eating out, shopping, and travelling are not vital and hence these might be put later on the priority list. In some cases, cutbacks might be required for these areas if the income replacement takes time. This will ensure that the pressure on the existing funds will go down and at the same time the liquid amounts will last longer.
Additional Income
It is also imperative that there is some additional income that is coming in for the individual from other sources so that there is at least some cash flow available. The importance of a sound portfolio and diversification of investments has a role to play here because when this is done the individual will be able to ensure some inflow of income. In case there is some other activity that a person does till a regular job is regained it will also help in generating some income. The amounts might not look big, but they help in ensuring that there is some relief on the financial front.
The writer is founder, Moneyeduschool