Skip to main content

Financial Planning For A Rainy Day

Loss of employment is a difficult period for salaried individuals and their families, but suitable financial planning can limit the impact


   BEING fired from a salaried job is new phenomenon in India. Till a few years ago, a salaried job with even a mid-size firm was for lifetime unless the employee quits to pursue greener pastures. Things have changed dramatically with the advent of the service-oriented jobs in the so-called new economy and the Indian economy hinged to the vagaries of the global market.


   Now a professional faces the prospect of a short-term break in his/her carrier due to challenging economic environments such as the current volatility in the world economy. While one cannot do much to avoid a job loss other than working hard, a well laid out financial planning may go a long way in mitigating its impact.


   Not long ago, the salaried class in India had been used a benign job market and near permanency of jobs. The picture, however, has changed over the past 10 years given the increasing number of job opportunities in areas of IT and IT-enabled services like call centers, BPO, and KPO, and other sectors such as media and entertainment, aviation and hospitality.


   For instance, during the economic slump of 2008-09, companies, mainly in export related businesses, had to reconfigure their workforce to address the falling demand from the US and European markets. This pushed a portion of their headcount into a temporary jobless phase. The situation was similar in the fields of financial research and investment banking, print and electronic media and gems and jewellery.


   No doubt, the present day employment is following the crests and troughs of global business cycles more closely than before. This makes it necessary to plan for such an adversity well in advance. According to the financial planning experts, the opportune time is now. Disciplined investment and savings pattern from the start of a person's working life is key to building financial security, and to ensure adequate funds during the loss of employment.

WHAT'S YOUR BUDGET?

During the loss of employment, a person needs to quickly adjust to a different set of challenges. While the regular inflow of money in the form of salary disappears, many of the essential expenses, such as monthly rent or interest on home loans, insurance premium, food and laundry expenses, medical expenses, etc will still remain.


   To get an exact sense of such expenses, one needs to draw up a budget, mapping the current monthly income and expenditure. This should include any type of loan servicing and credit card payments along with the available income streams, such as spouse's income, fixed deposit interest and dividend income, if any. Also, don't forget to include liquid assets such as bank savings and current account and liquid fund schemes of mutual funds.


   This leads to the next step of generating what financial planners call a contingency fund. Such a fund is crucial in meeting day-to day expenditure and other financial emergencies during the time of difficulty.

THE POWER OF CONTINGENCY FUND

Typically, the size of the contingency fund should be adequate to meet 3-6 months of a family's monthly expenditure, including loan payments. In some professions, which are highly specialized, and it is comparatively difficult to find an alternative employment quickly, financial planners argue for a 9-month contingency fund.


   While building the contingency fund, one can start by setting aside nearly 10-15% of the family's monthly income, in low risk instruments like bank term deposits and liquid fund schemes of mutual funds. Remember, this contingency fund requirement is dynamic.


   It needs to be reviewed each year to adjust for a possible increase in a family's income or expenditure pattern, or the enlargement of a family due to the birth of a child.


   For instance, if a family currently spends Rs 50,000 per month, they would need a contingency fund, that could vary between Rs 150,000 – 300,000. However, if two years later their monthly expenditure reaches Rs 65, 000 due to a bigger family, the contingency fund would need to be a minimum of Rs 200,000.

USE SEVERANCE PAY JUDICIOUSLY

A laid off employee in the organised sector typically receives 3-6 months of severance pay. In absence of a contingency fund, such a windfall cash flow would find its use in meeting day-to-day expenses. Experts warn against such uses of severance package.


   Financial planners say that if proper financial planning has been done from the beginning, the severance pay could be utilised to reduce outstanding loans, such as car or credit card loan. This will take away some burden from the monthly family budget since these loans typically have a higher rate of interest than a secured loan, like housing.

BE PRUDENT WHEN YOU SPEND

Young employees with lesser work experience may see their jobs vanishing faster than their experienced counterparts during a slowdown. Further, such relatively new employees may have lower contingency funds at disposal due to lesser number of years into service.


   Hence, it becomes all the more important for such individuals to limit their credit driven expenses. Lesser the burden of personal loan, lower will be pressure on contingency funds during testing times. Conserving cash is key during such a difficult time. Individuals also need to eliminate unnecessary expenditure to balance their monthly budget."

SEEK HELP OF YOUR CREDITORS

A senior executive at the country's leading home loan company said that the lender should help the client jointly analyse his monthly cash flows and various financial liabilities if he has lost his employment. Based on this exercise, if possible, it advises the client to pre-pay more expensive debt including personal, car and credit card loans to reduce the burden on the monthly family budget. Loss of employment is a difficult period for individuals but suitable financial planning in advance can help limit the impact.

 


Popular posts from this blog

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

SBI Long Term Advantage Fund Series

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax Saver Mutual Funds for 2017 - 2018 Best 10 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. ICICI Prudential Long Term Equity Fund 5. Birla Sun Life Tax Relief 96 6. Franklin India TaxShield  7. Reliance Tax Saver (ELSS) Fund 8. BNP Paribas Long Term Equity Fund 9. Axis Tax Saver Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave your comment with mail ID and we will answer them OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300  

ELSS Funds are Best Tax Saving Option

Equity-linked saving schemes (ELSS) are the best way to save tax in 2017 . The Economic Times assessed 10 tax-saving options on eight key parameters, including returns, safety , liquidity , costs, transparency , flexibility , ease of investment and taxability of income. ELSS funds scored highest, followed by the National Pension System (NPS) and Ulips at the second and third place, respectively . The terrific returns generated by ELSS (CAGR of 18.7% in past three years and 17.46% in past five years) are not the only plus point of these funds. Their costs are very low (2.52.75% a year) and all charges, portfolios and transactions are in the public domain. Returns are tax free because long-term capital gains from equity funds are exempt and they have the shortest lock-in period of three years. Investing in ELSS funds has now become very easy with the launch of the e-KYC facility . The whole process does not take more than 30-35 minutes. The Pension Fund Regulatory and Development Aut...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now