Monday, Dec 11, 2023

Why You Should Include Layoff Risks In Your Financial Planning

Outlook Money

Why You Should Include Layoff Risks In Your Financial Planning

Mass layoffs are common nowadays and as such, the need to include such a risk in your financial planning is paramount, given that a sudden loss of income could be devastating.

Mass layoffs have become a new normal these days. According to online tracker,, over 100 companies globally, including Accenture, Ernst & Young (EY), Walt Disney, and GitHub, gave the pink slips to their employees in the past two months.

In India too, startups such as Dunzo, Euler Motors, and Practo have fired employees in April, as per the layoff tracker. Job loss can not only affect you financially but also emotionally.

So, if you are still in a job, make sure you prepare for the rainy days while the sun still shines. Therefore, including these emergencies in your financial planning would immensely help.

Plan Ahead

An emergency can come in any form. Good financial support is very much needed at any point in life to handle these challenges. Financial habits like saving regularly, diversifying the investment, utilizing different investment instruments, and an early start of these habits can help you save for a bad day.

Create an emergency fund that can offer you a financial cushion in case you lose your job until you find a new job or a regular source of income to handle situations like this.

Nidhi Manchanda, Certified Financial Planner, says, "It's crucial to be prepared for any possible events which may affect you financially in the future, and layoffs being one of them, you should without fail create a financial plan keeping the possibility of layoffs especially if you work in an industry or company that is vulnerable to economic downturns or other external factors that may affect the business."

Most importantly, while creating an emergency fund, you must remember that the fund will be available whenever you need it. In addition, the emergency fund must have liquidity so that you do not need to run around to get your money.

Manchanda says that liquid mutual funds, ultra short-duration funds, or short-term fixed deposits may generate low returns, but these are liquid, and you can use them whenever you need. But, she adds, "One should have at least six months of expenses set aside as an emergency fund. However, one should increase this fund to 8-12 months of expenses if the person is the only earning member, has more than three dependants, or if one's job role is very niche and it might be difficult to find another job immediately."

So, for example, if your monthly expenses are Rs 50,000, your emergency funds should be Rs 3,00,000 at the minimum, and it can be more if there are more dependents.

Strategies For Different Career Stages

Here are some strategies you can use at different career stages if you are laid off or lose your job due to other reasons.

In early career: Early in a job, the emergency fund will be small or may not exist. In that case, you should use your time and keep your skills updated and remain informed about the earning opportunities where you can offer your services and return to the earning position at the soonest possible. Don’t be shy of any work related to your field, as it’s the learning stage.

Additionally, cutting the expenditure on any discretionary items such as shopping, eating out, or entertainment could be an option to save money.

In Mid-career: If you are in your mid-career and suddenly your job is snatched, you cannot ignore your household responsibilities. So the first thing should be to filter your needs from wants starting from rent, fees, food, basic facilities, transport, TV channel, or other platform subscription to reduce non-essential expenses.

Look to your emergency funds which you have saved for such a situation, and utilise them to run the difficult days. Searching for a new job while bearing all the responsibilities could be overwhelming. You may look into the next pool of saving and fixed deposits and make partial withdrawals starting with those deposits booked at the least interest.

Breaking long-term investments or taking a loan for household expenses at this point will be a good option once you get a fixed source of income.

Towards Retirement: There could be chances that the job cut happens when you are towards your retirement. In such an unfortunate situation, you should consider delaying your retirement by a few years. Looking for other income sources, such as rentals or working part-time to make ends meet without touching your savings, will be a good option. You must evaluate your savings at the time and try to keep things on track. You can also consider downsizing your home and other assets to save on expense