Layoffs in 2023: How to manage your finances amid job cuts

Layoffs 2023: If living from paycheck-to-paycheck and managing expenses on your salary seems like an arduous task, then imagine running your household with no salary at all. With stories of layoffs coming from very quarter, this quandary has sadly befallen on most of the laid-off workforce. 

From Microsoft to Amazon and Goldman Sachs, companies have cut thousands of jobs recently. And the latest in this long list is Dell, which has announced reduction of 6,650 jobs, or about 5 per cent of its global workforce. 

Although it is a harsh reality that any working professional could have to face, yet many of us remain blind to the possibility of a rainy day ahead. And if one doesn't prepare for such contingencies in advance, then it would possibly get really difficult to make ends when the monthly paycheck stops after loss of job. 

Reasons for lay-offs: War and inflation

According to Tanvi Kanchan - Head Corporate Strategy, Anand Rathi Shares and Stock Brokers, major reasons for layoffs include the Russia-Ukraine war, recessionary trends being witnessed in the major economies, record-high inflationary trends and the general economic situation witnessed across the globe. 

Those impacted by job cuts in such a distressing scenario suffer from loss of income, which often makes it difficult to make ends meet. 

Here are some points to remember when planning finances in the season of layoffs — 

1. Prioritise expenses

Make a list of expenses and avoid the ones without which one’s survival won’t be much impacted. 

According to CA Manish P. Hingar, Founder at Fintoo, in such a scenario it is important to prioritise expenses which are important and mandatory. He advises to avoid unnecessary expenses like dining out, entertainment and other luxury expenses. He suggests an increase in savings by reducing such optional expenses. 

How to segregate expenses? 

Kanchan suggests categorising expenses in short, medium and long-term recurring brackets, along with contingent ones. The expenses like food, clothing, rent, medication, fuel, etc. need to be placed in the order of priority and frequency — such as 0 – 3 months, 3 – 9 months, and beyond that.

2. Build an emergency fund and liquidate it 

Experts say that it is necessary to have at least 6 months' worth of expenses in the form of emergency funds and savings. 

“One must have at least 6-months-worth of expenses in an emergency fund. And this money should be invested in liquid investments such as fixed deposits, liquid mutual funds or ultra-short duration funds, so that it is immediately available when the need arises. Such investments should not be locked in for the long term,” Hingar says. 

“Individuals can also park money in emergency funds on the basis of tenure of their expenses, to avail better returns out of their investments. For instance, an expense which is needed post 9 months can be parked in a longer tenure paper offering better and safer returns,” Kanchan says.

How to build an emergency fund?

According to Girirajan Murugan, CEO, FundsIndia, to start an Emergency Fund one must do the following: 

-Start a separate account - could be a super savings account, Fixed Deposit, or Recurring Deposit (RD). 

-Analyse all the rates and schemes/accounts available in the market and go for the one that suits the best. 

-Make sure to have a separate account for emergency funds so that a transaction cloud is not created in one and only account 

3. Have a medical insurance in place 

Medical emergencies are uncertain and can cost a lot, thus having medical insurance should be an absolute necessity. 

According to Hingar, it is crucial to have medical insurance, not just for individuals but also for dependent family members, especially in times of layoffs. It can protect them and their family from financial burden in case of unexpected medical expenses.

Kanchan advises to not depend solely on employers’ medical cover, and adds, “Usually the employer covers medical expenses of salaried employees. However, it isn't advisable to depend only on that. One must ensure that they have an add-on plan, apart from the base plan provided by the employer to cover all medical expenses in case of a contingency.” 

Also READ- Dell layoffs 2023: American tech giant announces to cut about 6,650 jobs 

4. Reduce debts 

The most significant thing one should do is cut back on debts, because less debt means more savings in the long run. 

“Avoid taking new loans (in view of mass layoffs). Existing borrowers should start reducing their debt as much as possible to reduce dependency. If not possible, then one should definitely have at least 6-8 months of backup to pay off the EMIs while they jobhunt. Also, credit card usage must be minimised,” Hingar says. 

5. Don’t liquidate investment until absolutely necessary 

Kanchan suggests that one must not liquidate investments till it becomes absolutely necessary, because withdrawal of funds hampers the chances of generating additional income that can be generated by staying invested. Investments made in long-term assets can be moved or re-assessed, but not withdrawn.

She further advises to redeem only the amount which is needed on a short-term/ monthly basis from the emergency fund.

6. Have a plan B

She recommends having a plan B in place at all times. One must investment monthly for long-term needs, review portfolio regularly and ensure that the investments align with their risk-taking capabilities.

According to Manish, plan B should be having multiple sources of income.

“If you are not well prepared for layoff, then it is very obvious that you would dig into your long-term investments to meet your short term needs and thus it is important to create multiple sources of income to reduce dependency on just one income," said Manish.