Job insecurity is as old as time itself. Leaf through the pages of history and it is replete with stories of kings and queens who underwent extremely violent and bloody struggles to first secure the crown and then protect it from siblings, cousins, Uncles, neighbours, and other rivals. Nearly everything that the kings and queens did was to keep their subjects happy and thereby, protect their position as the rulers of the land.
Fortunately, in the modern world, we don’t have to resort to violence to keep our jobs. But job insecurity is real, whether you work in the same organization orwork in multiple companies throughout your career. The possibility of losing your job overnight is a worry common amongst employees, especially those in the highly competitive private sector.
Which brings us to the COVID-19 pandemic. Widespread employment followed the pandemic as it put an end to any notion of job security that there might have been. Entire economies were shut down and even businesses previously considered-immune from any downturn had to pull down their shutters.In India, as per data from the Centre for Monitoring Indian Economy (CMIE), nearly 19 million salaried people lost their jobs in the period between April and July 2020. The speed at which businesses shut down and jobs disappeared meant that very few were in a position to be prepared for the months ahead.
While job loss is not something anyone should ever experience, you can definitely have a financial plan ready for such circumstances in the unforeseeable future. Financial plans for job loss crises are important to any age and must be thought through well enough.
Create a budget
To begin with, create and stick to a budget. Preparing for job loss starts with handling your day-to-day finances better. Abudget might seem bit of a task, but it gives you a clear picture of your financial situation and abetterunderstanding of your income and expenses. This can in turnhelp planyour finances better when you know what your daily expenses look likeand can even help in early closure of any debt such as loans and credit card bills.
Contingency fund / Liquid Funds
Having a contingency or emergency fund is another important step. This acts as a cushion in case of sudden job loss that may leave you with maybe a month’s earnings as severance. An emergency fund is basically 3 to 6 months of salary in cash or liquid assets such as liquid mutual funds. Liquid funds act like bank deposits in that they are easily accessible and can be withdrawn with ease, instantly in case of some funds. The returns from these funds are comparatively higher than bank deposit rates. However, SEBI recently announced an exit load structure in these funds for redemptions within the first seven days of investment. No exit load is charged for withdrawals after seven days from the date of investment.
Investors can also look at short-term debt funds to park money in. Funds such as ultra low duration funds, low duration funds, and short duration funds can also be considered for such short-term financial goals to meet daily expenses. These funds aim to protect capital with reasonable returns. However, debt funds attract a short-term capital gains tax for withdrawals within three years of investment. So, it is important to invest in these funds at an early stage of your career so that they can be withdrawn with minimum tax implication in the future, in case of emergencies.
Don’t dip into long-term savings
Job loss can be a painful time for an individual filled with uncertainties and worries about the future. When and where your next paycheck will come from depends on many factors, most of which are beyond your control. But what can be controlled is how you respond to it, at least financially. If you have a financial plan and emergency fund at hand, then that is one less thing to worry about. Further, it will discourage you from disturbing your long-term investments which is what most people end up doing during a financial emergency.
Be financially prepared
If there is one powerful takeaway from the pandemic, then it is the unpredictable nature of things. While we can never be fully prepared, we must try our best to deal with it. One of the few things we can control is our financial preparedness for any situation. So, start investing today for better financial preparedness tomorrow.