Over the past few months, we are hearing news about many big tech companies handing over pink slips to their employees. Companies like Twitter, Amazon, and many of them are slashing their workforces. It is unfortunate to hear such news, and it is an eye-opener for many because this can happen to any one of us at any time. So there should be a plan to face the financial challenges during the job loss period.
| Table of Contents |
| Are job losses the start of a recession? |
| How to prepare for job loss? |
| Where should you park your emergency money? |
| What should be your investment strategy during a recession? |
Are job loss(es) start of a recession?
With growth slowing down globally, fear of recession is building up.
It is complicated to relate a recession or a global recession to your job and look at your situation independently. People are losing their jobs due to various reasons.
The recession is a massive contraction in economic activities.
Some people work in startups, and startups might run short of money due to economic slowdown. So everyone’s problem will be unique, and you have to prepare for it if there is an issue of Global recession or American recession.
Recession in the US can have a disastrous effect on India.
The US is witnessing inflation and a phenomenal rise in prices for the first time, which they have not in the last 30 years. It impacts jobs in US and jobs we in India work for them. It will majorly affect the people working in software services companies and startups, which big companies and venture capitalists fund. Suppose the companies become apprehensive about their future. In that case, they will tighten the rules for employees, which will have implications for losing jobs.
Even without a recession, one should always be prepared to cope with job loss.
It will be complicated to relate what is happening. So get a sense of where you stand and prepare accordingly. Depending on your circumstances, carefully assess how much you would need.
How to prepare for job loss?
Preparing well means having an adequate emergency fund.
Preparing well could mean a different thing for different people. Emergency corpus is a relative thing. It depends on your circumstances.
Someone with no responsibilities can easily handle the situation. But if you have young children and have to take care of them, then make sure you have a liquid emergency fund.
Necessary to have at least six months of living expenses if you have dependents.
The emergency fund typically is six months of your living expenses. An emergency fund is necessary to meet the daily costs when looking for a new job. There are other precautions that you can take which can make you know this whole transition or a phase of unemployment.
Make sure you have health insurance.
Whenever you face a job loss, you have at least one health insurance. It can make your life very difficult just in case that particular phase of not having a job coincides with your illness or sickness in the family. Health insurance can be helpful in that time. Another is to ensure you have six months of living. That will be very reassuring and will not be a confidence erosion for you. The scale of these needs will be increasing, and if you also have your parents living with you and they are dependent, then it can be a little more.
Do a liberal estimation of how much you would need in case of a job loss.
Having an estimation of a reasonable kind is necessary. Do some liberal estimates if you need to manage a lack of money due to job loss for the next three months. Be a little liberal with your estimation because things may not improve as we think, so just having a little more will be helpful.
It is crucial to estimate your emergency fund and plan to start saving for it.
You will not get started if you have done your estimation liberally and see an amount you think you can not make. But doing an estimate is necessary, and even if it takes much longer than you think, you should put that plan into action to build that amount in the next year. However, it might take two and a half years.
Getting started is the biggest challenge when it comes to postponing your consumption.
Beginning with a plan is essential because getting started is the biggest challenge when it comes to differing your spending today and postponing your consumption. Hence, it would help if you were disciplined about your savings and investment plan and immediately put that plan into motion.
Where should you park your emergency money?
Park your emergency money in three layers.
Put your emergency money in three layers. You should have all three gradually.
Keep some cash handy in your wallet for immediate use in an emergency.
One is to have some amount of money which should be present in your cupboard or your purse. It should be handy just in case you have a real emergency.
Have a small fixed deposit that should be withdrawable immediately in an emergency.
The second thing is you should have a small fixed deposit; small means do your estimation, and it should be in a sweep account so that you can use your ATM card to take that money out if you need it.
Keep some amount in an ultra-short duration fund for optimizing returns.
The third is the amount of money that should lie in an ultra-short-term bond fund which you require in a few days. This money should be accessible in an emergency and generate some adequate return meaningful return simultaneously. You can take cash at any time.
What should be your investment strategy during a recession?
Losing your job during a recession would mean the Market will be at its low.
Considering that we may get into a recession, or even if there is no recession, your job loss will also coincide with the Market not doing well.
Essential to have an asset allocation plan in place.
So you should always have asset allocation. In good times people forget about it, and in bad times people remember it, but that will not help. So it is essential to have asset allocation, and the asset allocation principle should be simple.
Have an asset allocation plan according to your circumstances and stick to it.
If you have three to five years, invest substantially into fixed income and nominally into equity. It would be best to invest significantly into equity when you don’t need the money for five to seven years. When you need the money next three to five years, you should be mostly into fixed income and nominally into equity which will not give you heartburn. Because when you lose your job, that coincides with the falling Market, and you see all your lifetime accumulation also decreasing in value which is very disappointing. That can also force you to do something that may financially harm you.
When we panic, we try to pull our money out, which is generally the wrong time. So it is essential to have your asset allocation and stick to it based on your situation rather than the state of the Market. So if you have your asset allocation, you will not panic and feel happy.
Disclaimer: This article is published in good faith and for general information purpose only. Chandras EDU does not make any warranties about the completeness, reliability and accuracy of this information.
Check out more articles in Home page.
