How to manage your finances in case of a layoff?


A layoff can be one of the most dreaded financial crisis. The primary reason for layoffs can be the slowdown in the economy and depressed sentiment in the professional sector. Although a layoff can bog you down financially and emotionally, you should prepare yourself to deal with the situation smartly. Therefore, let’s understand how to manage your finances wisely in case of a layoff with these top four steps mentioned below:

  1. Develop a contingency fund

Contingency funds can be the total amount of money that you have accumulated to manage an emergency situation, such as a job layoff. The main purpose behind the development of a contingency fund can be to cover your fixed costs for a stipulated period. A contingency fund should be able to cover you for a duration of six months.

To build a contingency fund, you can start a systematic investment plan (SIP) that can allow you to generate money for the next 3-6 months. Since liquidity is the prime factor of a contingency fund, you can withdraw your money whenever you need it urgently to deal with a crisis, such as medical emergency, loss of income, physical disability, and so on.

  1. Invest in the right tools

Investments can allow you to grow your funds as well as can act as a financial backup to support your needs. Therefore, you should opt for goal based investing that can let you turn your dreams into reality. First, you should analyse your short-term goals and long-term goals and make an investment accordingly. While your short-term goals can be buying a new house or car, your long-term goals can be funding your children’s education or their wedding.

There are various investment plans, such as a Unit Linked Insurance Plan (ULIP), Mutual Fund (MF), Equity Linked Savings Scheme (ELSS), etc. Based on your goals, choose an investment tool that can align with it. If you have short term goals, invest in ELSS or any other types of investment options with a short duration. If you are aiming for long-term goals, investing in a ULIP plan can be the right choice.

  1. Activate your insurance policies

During a layoff, it can be essential to keep your insurance policies active with regular premium payment. If you depend on a health insurance policy provided by your employer, you should pay the premium on time, even in the case of a layoff. When you don’t pay the premium, your family might remain financially unprotected.

Having a health plan, along with top-ups can be the right solution. It can allow you to secure your family members with adequate insurance during an unfortunate event. Irrespective of a layoff, keeping your insurance policy active can be crucial.

  1. Make use of credit cards

Credit cards can be beneficial during a layoff since they can offer free credit until the due date. Ideally, you can qualify to receive free credit only if your card consists of a credit limit.

Although you can use a credit for the cash flow management, you should save it as a last resort. Make the right use of a credit card during an emergency situation, such as a layoff. If you have a credit card, avoid falling into the trap of partial payments and start making payments by the due date. Staying away from debts can help you in reducing your expenses in the case of a layoff.

In a nutshell, a layoff can have a significant impact on your finances. Although you might not be able to predict the situation, you can tackle it effectively with the right measures mentioned above. Rather than fretting about the layoff, make the right use of your finances to ensure you have adequate funds under such a scenario.

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