Surviving the hit

Financial setbacks happen to anyone, anytime. Here are some damage control steps to help you tide over the storm

Businessman in stress

Arjun Luthra, a senior level corporate executive seemed worried. He said to his wife, “I lost my job today because of our company’s restructuring programme. The economy is on a downturn and I am not sure if I can find a job anytime soon. I am more worried about the loans we have taken and about maintaining our lifetsyle. I am not sure how we could bounce back.”

At the other end of town, Sumit Varma, a business owner in his late 40s had a similar worry. His sales were down 60 per cent, clients were delaying payments, his inventory was piling up and cash flows were in deep trouble. Having made good money in the last few years, Sumit felt that the party would last forever.

These are not isolated incidents and are slowly becoming the norm as Corporate India feels the pain of the global economic meltdown. Several Indian workers are laid off everyday, but these layoffs do not make headlines.

This will pass

Losing a job or suffering a major business loss can be very traumatic for people who haven’t experienced it earlier. There is a feeling of lost hope and often people start losing confidence in themselves. One can, however, certainly bounce back from such events just as many successful people have. These are temporary setbacks that can be overcome.

Damage control

The first step is to overcome the emotional imbalance and stress that you might be experiencing now. This is easier said than done and most people go through several phases of panic, fear, guilt and anger. Once you have accepted the reality as a challenge, the second step is to take stock of where you are financially.

You might have to survive the next several months without an income and hence must discuss your finances openly with your spouse. Evaluate your overall financial needs, current situation and then prioritise expenses. If your spouse is working, there is some respite because of his / her income. But remember that it could take more time for you to get a job in these economic challenging times than in boom times.

Some things you should do:

    • Take an inventory of employer benefits you may have. This could be in the form of a provident gund, gratuity, pending reimbursements or any severance benefits.
  • Calculate your net worth. Write down all your assets namely cash, savings account balance, fixed deposits, bonds, stocks, mutual funds, post office investments, real estate [excluding residence], gold and other investments. Write down all your liabilities. Then, subtract liabilities from your assets to arrive at your net worth. List all assets that can be liquidated. Once you are clear about how much you have and the assets you can liquidate, you can comfortably create a survival budget for the next 6 – 12 months.
  • Understand your mandatory and variable expenses and reduce discretionary expenses by as much as you can. Some expenses such as food, insurance, school or college fees, house maintenance, and utilities cannot be minimised. However, you can curtail expenses such as dining out, entertainment, vacations and shopping until you achieve financial stability again.
  • Review your medical, life insurance, disability and property insurances. Do not stop your medical insurance. One of the foolish things people do in such times is to let their policies lapse. Hospitalisation during such times is the last thing you want and you must have a solid medical cover in place in case that happens. Take a medical cover of at least Rs 5 lakh now if you have not taken it earlier. Buy a term plan, a pure risk cover plan, to cover all your liabilities and your family’s income need. Likewise, if you are paying very high premiums on investment-oriented policies, you should decide unemotionally whether you should continue them. Cut your losses, now [surrender the policies] or make the policies paid-up if they are low return and are causing a drain on your cash flows. At the same time, do not think of insurance as an expense but as something that you must adequately have during such uncertain times.
  • Examine all sources of funding in case of shortfalls. Family [parents and siblings], friends, banks, and financial institutions are sources of emergency funding. If you do not have any loans, you might be in a position to tide the downturn better as you can always borrow against your home if not against other assets. If you have several loans and no savings, then it’s best to tap family members [if this is a choice] and banks to see if you can get sufficient firepower to last the next one year. Pay out a generous interest rate to your family, once you are out of this mess. See if you should be selling your second car or some jewellery to raise emergency funds. These are extreme steps, to be taken only in case you cannot resort to other options.
  • Tap all sources for a job. There is no need to hide such facts from family and friends. In fact, if people know about this situation, they can help you find a job quickly or to start your own business [yes you read it right]. Starting a business, however, can be even tougher as you would now have to manage your personal expenses and your business expenses too. So evaluate this option carefully and do not be emotional about starting something in very uncertain times. This is also a time to introspect on the kind of career you want and it’s quite possible that you change tracks and get into a different field. If need be, start working part-time.

Don’t panic as this is only a temporary setback. Perseverance and a conscious effort to overcome this setback will guarantee success.

Calculating your net worth

Sr.No. Asset Amount [Rs]
1. Cash in hand
2. Savings and current account
3. Fixed deposits, and bonds that can be liquidated
4. Stocks and mutual funds
5. Gold

This was first published in the June 2009 issue of Complete Wellbeing

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Amar Pandit
Amar Pandit is the founder and CEO of My Financial Advisor and best-selling author of The only Financial Planning Book that you will Ever Need. He is very passionate about spreading financial literacy in India and does so regularly through his sharp and analytical columns in various newspapers and websites.


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