We saw how financially tough it became for many who got jobless during the COVID pandemic. Be it labour-intensive or skill-intensive, almost every industry saw an exodus of employees due to the business disruptions brought in by the pandemic. So when lockdowns were at their peak during April 2020, more than 40 million people lost jobs in urban locations of India. Whereas 73 million rural people got jobless during the said period. That was a pandemic and its effects were mostly uncontrollable. But job losses had happened before too. How can we forget the infamous 2008-09 economic crisis where companies did a mass layoff to stay afloat? So as responsible individuals, we need to step up our financial planning to stay cool even if we lose jobs later. Let’s discuss such plans here.
So What Financial Planning is Required When You’re Out of Work?
In case you lose your job, you need to keep your debt to ZERO or at the minimum level. But even more important is to prepare for this situation beforehand by building your emergency fund from your first salary itself. Further, you need to compromise on your luxuries for the time you’re out of work. After getting the job, keep building your savings which you could not have done while you were jobless. Do follow these principles no matter what to stay afloat at such times. Let’s do a deep dive on such financial planning.
How to Keep Your Debt to ZERO While Being Jobless?
Imagining debt feels like a shock while you’re jobless, let alone paying it. Put a stop to your credit card purchases to nullify the possibility of any debt. Also, if you’ve got a car loan running in your name, sell the vehicle to get rid of the debt. Even if you get a job soon, show discretion while shopping with credit cards. The reason being you also need to cover the income deficit, which would arise while you’re jobless, by saving more. So, the less you shop, the more you save.
Emergency Fund Helps You the Most During Such Times
What did you feel like doing with your first salary? Many spend that and the pattern continues…Later when they get jobless, they rue the lack of savings to deal with the difficulties that follow. It’s important to save from your first salary itself to stand the test of these uncertain times. Keep saving 10-15% of your income, and if you can save more, better! As you never know for how long you’re going to be jobless. So, saving more than usual will only help you!
But Where Should You Park Your Money?
You have got so many financial instruments to choose from – savings accounts, recurring deposits, fixed deposits, or even mutual funds. Before choosing, know the expected returns of each of these instruments.
Savings accounts earn you interest at 3-7% per annum. However, most banks offer you 3-4%, with only a few giving you more than that.
Recurring and fixed deposit rates of a particular bank remain the same. So, if a bank offers 7% on a recurring deposit for INR 2 lakh, the same rate will apply to a fixed deposit for the said amount.
There’s a basic difference between the two though. Recurring deposits mean you have to keep depositing a particular amount. Whereas fixed deposits mean the amount you need to park once. Both will continue for the time you book them. At maturity, you will get the invested capital along with interest.
All these instruments ideally suit the ones with zero-risk tolerance. But we believe in the popular saying – no risk, no gain. Yes, you need to invest a fair amount in the high-risk, high-return potential of stocks too. You can choose mutual funds to invest in stocks and earn if you don’t know the market dynamics. Professional fund managers steer your mutual fund investments through the thick and thin of the market.
The same investment strategy you can adopt after getting the job to be on course for retirement and other life goals.
Life contingencies such as a job loss can happen, but having an adequate financial backup helps you survive such times. It may require you to give in some of your privileges. But the relief you will get in return doing so will only make you feel at ease in desperate times.