Prioritize essential expenses and cut back on non-essentials. This might be the hardest part of dealing with job loss, but it is also the most crucial.
While certain expenses such as housing, food, and utilities are non-negotiable, others can be postponed or eliminated.
Losing a job creates turmoil not only financially but also emotionally in one’s life. However, it’s crucial not to panic. Instead, focus on planning how to navigate through this challenging time. While it is always good to allocate your income into three categories: 25% for saving and investment, 25% for lifestyle expenses, and 50% for household expenses, if you’ve recently faced a job loss, prioritize curtailing your lifestyle expenses. If necessary, pause regular investments like SIPs. Should you still find it challenging to manage your expenses, consider following these steps:
1) Evaluate Your Current Spending
Prioritize essential expenses and cut back on non-essentials. This might be the hardest part of dealing with job loss, but it is also the most crucial. It’s important to live within your means when you’re coping with a loss of income, even if that means making changes in your lifestyle temporarily. So begin by meticulously listing down all your expenses and categorizing them into:
Essential expenses: Food, utilities, housing
Postponable expenses
Expenses to forego temporarily
While certain expenses such as housing, food, and utilities are non-negotiable, others can be postponed or eliminated. For instance, consider restructuring or deferring debt repayments and cutting out discretionary expenses like dining out or unused subscriptions.
2) Estimate Your New Monthly Cash Flow
Calculate your revised monthly financial commitments, ensuring to prioritize fixed expenses like insurance premiums and loan EMIs. Assess your savings to cover at least six months of expenses. If insufficient, strategize how long your current funds can sustain you and determine the additional financial support needed per month.
3) Generate Active and Passive Income
Reallocate your investments to generate passive income, perhaps through a Systematic Withdrawal Plan. SWP allows you to withdraw a fixed amount at regular intervals from a mutual fund and is technically the opposite of Systematic Investment Plan or SIP. Here, it is important to note that the computation of taxation is done differently for FDs and SWPs. In mutual funds, units are redeemed monthly, and tax liability arises only on the capital gains component. In contrast, the entire interest income from FDs is chargeable to tax.
Additionally, explore opportunities to generate active income to bridge the gap left by your lost job. Ultimately, your aim should be to regain employment as soon as possible. Make sure your CV is updated, turn on job alerts on professional networking sites and regular job boards. Network with your professional contacts to see if they can provide leads for potential job opportunities.
If the above measures prove insufficient, you may need to explore more drastic actions to meet your living expenses. This could involve seeking financial assistance from friends or family members, who may offer more favorable terms compared to traditional lending institutions. Consider selling unnecessary assets. Perhaps you have an additional car or house that you no longer need, or valuable items that you can sell to make ends meet. These solutions are not ideal, but they are viable options to consider if you need urgent access to cash.
In conclusion, losing your job can be a stressful and challenging situation. It can shake your financial stability and squeeze your monthly budget. By evaluating your financial situation, creating a new budget considering your changed circumstances, and exhausting different options for creating income, you could get back on track.
Remember that this is temporary. With the right strategy, financial discipline, and a focused job search, you can navigate this challenging time and come out stronger on the other side. It’s not about how many times you fall, but about how you pick yourself up, and push forward that counts. Stay hopeful, adaptive, and remain in control of your financial and personal situation, even in the face of adversity.
