How To Manage Money After Job Loss

A loss of employment could happen to anyone at any point. Hence we insist that you must always – always – maintain an emergency fund to deal with a loss of regular income. This fund should ideally be enough to cover at least six months of your essential expenses such as rent, EMIs, insurance premiums, education fees, transportation, utilities, and essential supplies like groceries and medicines.

During this financial emergency, you’ll be on a tight budget. Therefore you should use your emergency fund judiciously and not spend it on lifestyle choices such as eating out, vacations, clothes, electronics, etc.

You can build your emergency fund using liquid instruments such as recurring deposits, fixed deposits, liquid mutual funds, and high interest savings bank accounts. This way, your money remains locked in and also grows on its own through interest generation.

Ideally, withdraw your fund in a controlled manner month-by-month instead of liquidating the entire fund. Also, always maintain life and health insurance, since you do not want to compound your problems during a cash crunch. 

But what if you don’t have an emergency fund and you’ve lost your job? Here are some steps you can take.

Find A Job

The first step to take is to put yourself back on the job market. The quicker you start earning again, the sooner you will get out of your financial quagmire. If you aren’t finding full-time employment immediately, you can take short-term freelance assignments.

Use Your Settlement

It is likely that you will get some form of compensation from your employer for terminating you. Your compensation may be worth one month’s pay or more. Please make sure you also receive all dues, reimbursements etc. in your full and final settlement. This money should be enough to sustain you through the immediate future. Resist the urge to liquidate your PF holdings since this money is unlikely to come through for several months.

Take Stock Of Savings & Investments

Next, take stock of the funds you have in savings accounts, cash, deposits, investments, etc. You’ll need to use this money judiciously and not burn through it in a hurry. Get an estimate of how long this money would last if used for covering your fixed expenses. Don’t withdraw everything all at once. Do it in a controlled manner. If you find employment again, put the remaining funds back into the investments that you had encashed.

Save Up

A penny saved is a penny earned. So cancel any spending, subscriptions and plans that may seem luxurious at this point. For example, if you have DTH, cancel your Netflix plan. If you have a two-wheeler, use it instead of your car and save on fuel costs. 

Speak To Your Lenders

You need to address your lenders. Some of them would want to know about any changes in your employment – especially any change that impacts your ability to repay your loans. If you’re in a tight position, you need to inform your lender of your inability to pay your EMIs. They may amend your loan terms to accommodate your situation. They may offer options such as lengthening your loan tenure to reduce the EMI side.

Use Your Insurance Grace Period

If you have insurance premiums that you are unable to pay, check with your insurer about grace periods and restarting lapsed policies. Typically, insurers offer a 30-day grace period for premium payments. Insurers may even revive a lapsed policy if the premium is made at a later date. Under any circumstance, do not go without your health and life policies especially if you have dependents.

Sell Items You Don’t Need

You can raise some money by selling personal items you may not need. You can do so easily by listing the products on the many online classified websites. For example, you may have a spare cellphone that you don’t use. Sell it to generate some cash.

If All Else Fails…

If the situation demands it absolutely, borrow some money. You can first try to borrow from family and friends, and ask for amenable repayment terms. If this is not an option, take a personal loan or a loan against security – but exercise extreme caution and borrow only to the extent you can repay the EMIs without straining your already thin resources.

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(A version of this article appeared in the Financial Express.)