Investment tips in the time of pink slips: Here's how to create a cushion

It's never easy, but you can make it less difficult with early financial planning

With the Indian economy slowing down, the job market has been hit. Maruti Suzuki, the market leader in the auto sector, has already cut 6 per cent of its temporary staff. And the Automotive Component Manufacturers Association (ACMA) recently warned that the slowdown in the automobile sector would lead to their members trimming nearly one million jobs. While most of them might be temporary jobs, there are fears that permanent jobs could also take a knock. And it’s not just the auto sector, slowdown in the non-banking financial companies is also leading to job losses.

Raj Bhatt, vice chairman and CEO, Elara Capital, an investment bank having global presence recently told Business Standard: “We are in the same situation the US was in during 2007-08 after the Lehman crisis.” Bhatt’s observation might sound a bit alarmist to many, but it is certainly an indication of how things are shaping up. And there is no better time to prepare yourself for such a situation. This could be a good time to remind yourself of the financial steps that need to be taken. 

Assess your finances: While this should be an ongoing exercise, take a step back and do it again. Take stock of your income, savings, investments, expenses and payment commitments such as loans repayments, insurance premium and children’s education fees. Based on that, you should set aside a corpus that would meet your expenses for a year. Anything above that is a bonus that would come handy. “One should set aside about 12 months’ expenses, including funds needed to pay equated monthly instalments. It is good to keep this money in liquid funds or flexi-deposits of banks,” says Suresh Sagagopan, founder, Ladder7 Financial Advisors.

Be adequately insured: Your employer may have been providing you with some basic life and health insurance covers. But remember these will cease if you lose your job. With rising treatment costs, not having a health cover during the period when you are out of a job could mean a huge dent in your savings. “Everyone must ensure that they have independent and adequate health cover in place for self and dependants, as the employer-provided health cover may not be available. Also, remember to make payments of your term insurance premiums when due,” says Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors. Besides a good health cover and term plan, it is advisable to have other covers such as accident insurance and critical insurance.

Lower debt: Debt can be the single biggest drag on your finances if your salary stops flowing in at the end of the month. So keep your debt to the bare minimum needed when you have a good job going. “Large debt can be tough to manage when one is unemployed and can cause huge stress (in addition to the stress of having to find a new job). While you’re still getting paid every month, have a plan in place to pay off your debt, and proactively avoid letting it accumulate over time. Focus on paying off high-interest loans first or anything that you can get rid of quickly. However, the first principle of not having too much debt always remains a golden rule, even when you’re employed,” says Govila.

Enough investments? They could come in handy when money is needed. It is best to take stock of your fixed deposits, stocks, mutual fund investment and property. In extreme situations, you might need to liquidate a part of your holding to generate cash. “If some contingencies are expected, it would be a good idea to cash out from existing investments and keep them in liquid debt instruments. The amount will be based on the contingency envisaged. However, one should not resort to any panic-induced actions like selling off investments and investing in debt instruments. Whatever actions are taken should be well thought through,” says Sadagopan.

Avoid these

• Forcibly continuing with SIPs or other investments
• Investing in instruments with a lock-in period
• Dipping into your retirement savings kitty
• Starting a new venture to generate income
• Taking loans against the existing house

Goals are permanent: Do not change your financial goals in a knee-jerk manner. You might land a good job again. “Stay focused on your financial goals, and don’t let the short-term pressure due to a job loss result in a complete change in your financial plan. Sit with a financial planner and evaluate different scenarios and decide the course forward. This should ideally be done as soon as murmurs of job cuts start,” says Dhawan. However, if you are unable to continue a systematic investment plan, don’t be a prude and put pressure on your finances. When you get a job again, restart it.

Always remember that job loss is likely to be temporary, whereas goals are permanent. Even if you lose your job, keep away from the temptation to withdraw your retirement savings unless you are desperate and have to take a loan otherwise. Your employees’ provident fund or public provident fund amounts should be the last chunk of money you should use. And before you need to use them, you might get another job.

Also, with the buzz of entre­pre­neurship and start-ups growing, it could be tempting to think of starting off on your own. However, one should not rush into putting a large amount of savings in new ventures unless there is a proper business plan. “Don’t be tempted to use all of your money to start a business. Starting a business to get revenue back into the home is a possibility, but there is a danger of using up all your savings. You may not have anything left to fall back on if it doesn’t work out. If you start a business, get some advice from a professional. Get a business plan together and check with experts in a similar field to ensure that it will work. If you get a business loan, make sure that you can afford the repayments,” says Govila.

Last, but not least, use your time to gain new skills. Learn new skills that could help you get a job more easily over others because the job market will have many applicants like you. Invest in reskilling.