The spectre of a potential job loss has been hounding most people once again across the sectors. However, one can look at developing a suitable financial strategy to cushion the effect brought on by an unexpected job loss scenario.
Building an emergency fund: Such a fund is essential to tide over an emergency, including a job loss. The thumb rule is to build an emergency fund of three to six months of monthly expenses.
Ideally, one can divide the salary into one-third and two-thirds. One-third of income should be compulsorily saved and should go towards building an emergency fund. It should not be diverted towards long-term savings. Until 50% of the corpus is attained, one should not opt for any long-term investments.
In addition, 50% of any incentives or bonuses that an individual may get must be earmarked for emergency funds.
To answer the moot question as to where to park your emergency funds, an individual may keep the emergency funds in their savings account. Ideally, it is advised to park emergency funds in liquid funds for a bit higher return.
A smart move an individual can make is by keeping two months of one’s expenses in a savings bank account and, after that, invest it in conservative hybrid mutual funds, which invest primarily in fixed deposit (FD)-like instruments, with some exposure to stocks.
Kickstarting investment journey at the earliest: Professional financial experts usually advise that once the goal of 50% of emergency funds is attained, an individual should divide one-third of income into two components. One part should be diverted towards emergency funds, and the other should be invested.
Investing in mutual funds via systematic investment plans (SIPs) and stocks or trading can be looked at with a clear focus on financial goals and risk-bearing capacity.
Getting insured: This is also an essential requirement of the times. Generally, an employer provides health insurance coverage, but this will not be there in the scenario of a job loss.
So, it helps to opt for a term and health insurance in time. Moreover, according to experts, a term plan is required only for up to 60-65 years; buying a whole-life policy won’t make sense in financial terms. A term plan would be available at a quite reasonable premium at a young age.
Considering that times are uncertain, maintaining financial discipline is crucial to be prepared for a rainy day.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.