With the rising inflation increasing our lifestyle expenses, a regular salary is the only way to survive. But what happens when you are handed the pink slip?
A sudden job loss is both emotionally and financially damaging. While you might deal with the emotional loss, do you know how to handle the financial one? Dilip was in such a dilemma when his company laid him off as a part of its cost-cutting measure. Though he was dejected at losing his job, the bigger problem he faced was getting the ends to meet. He didn’t know how we would pay off his home loan EMI and meet his household expenses. Do you know how?
You might not. Here are some tips to deal with your finances in case of a sudden job loss –
- Don’t default on the loan. Get it renegotiated
Lenders allow renegotiation of the loans extended by them wherein you can get your repayment tenure extended to lower the EMIs or an EMI holiday. Instead of defaulting on your loan repayments, get your loans renegotiated. Talk with the lender and try to increase the repayment tenure. It would bring down your EMIs and make them affordable. Defaulting on the loan is not a good idea because of two disadvantages. One, you get charged a penalty for the default. Two, your credit score suffers due to the default. So, avoid defaulting on the loan and get it renegotiated.
- Re-allocate your monthly budget
Now that you do not have a steady source of earnings, it is time to redo your expense budget. Cut down on unnecessary expenses and spend on things which are absolutely necessary.
- Assess your investments
If you have investments which require regular investments, you should rethink about them. In case of SIPs, you can stop your investments without any penalties. If you have a life insurance policy where premiums are payable regularly, change the premium paying frequency. Try and pay monthly premiums to avoid sudden outflow of money. Once you get back a job or start earning again, you can continue your SIPs and annual premium payment, etc.
- Take loans against assets or sell them
If you have assets, pledge them to get secured loans. These loans would have a lower interest rate and you can avail funds easily for your daily lifestyle expenses. If possible, redeem your investments rather than taking a loan to avoid repayments or sell your assets for generating funds.
- Dip into your emergency corpus
It is advised to hold at least 6 months’ salary in a contingency fund. If you have done so and created a contingency fund, dip into the fund for money because your job loss is an emergency. However, if you have not created any emergency corpus, you have no option but to sell off your assets or redeem your investments.
- Try using your credit card for transactions
Your credit card requires payment at the end of a 30-day cycle for all transactions carried during that period. They also give you a pay-by period of 15-20 days after the completion of the 30-day cycle. Thus, for any transaction conducted using the card, you can defer payment till the pay-by date. This gives you ample time to arrange for funds or land a new job. So, try using your credit card for transactions when you cannot pay for them immediately.
- Use your severance pay to invest in a Systematic Withdrawal Plan (SWP)or in the dividend option of Balanced Funds
You must have received a severance package when you lost your job. Invest it wisely. Buy a SWP with the lump sum. The SWP plan would pay you an income every month, quarter, half-year or year as per your choice. This would yield a regular stream of income for you. Another option is to invest in dividend-oriented Balanced Mutual Funds. These funds pay a good dividend quarterly thereby providing another source of income.
- Seek out help from family and friends
If there is someone who can help you in an emergency, it is your family and your friends. If you are in dire situations where the above-mentioned tips don’t apply, don’t fret. Borrow from your family and friends. They would lend you a helping hand financially and you can meet your expenses from the money extended by them. However, ensure that you always pay them back!
However, please remember that once you start earning again:
- Replenish your contingency fund to at least 6 months
- Clear all debts, especially bad ones like personal loan, credit card outstanding, etc.
- Rebuild assets and start your investments again
- Build a Plan B for yourself and your family. This can be done by creating an investment corpus and opting for systematic withdrawals or dividend payouts in an emergency.
A job loss, though bad, is not under your control. However, dealing with the finances post job loss is. Follow the above-mentioned tips and deal with your finances effectively even after losing your job.
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