Preparing financially for a lay-off

The buzzword now across IT companies is layoff.  It is not restricted to IT companies but lay-offs are becoming more common even in industries like Retail, Telecom, e-Commerce etc., Wherever you look around, you hear companies laying off people, in thousands.  Though it is agonizing, it is a reality which everyone has to face in today’s employment market.

In such a dynamic environment if you think you are vulnerable to layoff in your company, you can be well prepared to meet the lay-off, at the least, financially.

Typically these are the top nine areas of focus prior to and post the lay-off:

  1. Adequate corpus to meet the living expenses:

Set aside at least 6 months of your regular expenses in a Savings Bank account or Bank FD or a Liquid Mutual Fund.  In addition to the regular expenses, you also make sure to include the monthly EMIs for loans, annual insurance payments, children school fees, if any.  If you are able to increase the amount to cover 12 months expenses, nothing like it.

With your regular expenses taken care, you can feel more secure.

  1. Obtain a stand-alone medical/health insurance: 

You have been all along been using your employer provided hospitalisation cover.  But the time has now come to get your own standalone medical insurance.  You need to be adequately covered to meet any emergency hospitalisation.  In today’s scenario, any cover of less than Rs5 lakhs is inadequate.  So, go ahead and purchase a medical insurance cover immediately for you and your family.

  1. Review your life insurance covers: 

Most of the companies used to provide life insurance covers to the employees and as a result not many had gone for life insurance covers outside of their employment.  The amount of cover required would vary on a case to case basis depending on the kind of liabilities and responsibilities of the person, but the thumb rule is to have a minimum of 10 times your annual salary.

  1. Set aside money for enhancing your skillset

It is proven that the Return on Investment (RoI) on learning is huge. Utilize the downtime to invest in catching up with the latest trends and techniques in your chosen area. With a boom in online learning programs this need not be as expensive as a regular course also. Remember if you can have the latest knowledge in addition to your past experience that will give you an edge for future jobs/engagements.

  1. Clearly understand your termination benefits

Often employees are not clear about the benefits to which they are entitled on termination including gratuity, leave encashment, retrenchment bonus etc. as well as the tax treatment for the same. Ensure that you read your terms of employment as well as retrenchment notice terms carefully so that you don’t miss out.

  1. Don’t withdraw the PF balance immediately:

There is no need to rush to withdraw the Provident Fund balance immediately on your layoff.  You are still going to be active in the job market, so retain the funds in the PF account.  It would continue to earn interest for the next 3 years, even if there are no further inflows in the PF account.

  1. Review your monthly investments and spends:

Critically review the monthly investments and spends and stop those which are non-critical.  Continue with the critical ones and save the precious funds.

8. Go after your friends to whom you have lent money:

You need to start collecting the hand loans given to friends and relatives to tide over the situation.

  1. Look for part time revenue options:

You can stretch your savings significantly if you can get part time work. This may even come from your hobbies/interests but it will give you the chance to meet new people, reduce the cash burnout while you look to get back to a main full time job.

Tiding over this tough period for anyone is crucial.  At the least, you can reduce your financial worries in this period by focusing on the above.

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Annual Financial Health Check – 10 things to achieve financial fitness

As we are about to get in to the final month of our financial year, I thought it would be useful to list down what you need to do on an annual basis to keep yourself fiscally fit.  This exercise is similar to the annual master health check up, which we are all very familiar with.  What Master Health Check up helps to avoid are nasty surprises with regard to our health in the future.  It is preventive maintenance and it’s much better than reactive treatment after occurrence of the illness.

Similar to Master Health Check, it is important once in a while to check and see if your personal finance is also in order.  This financial health check would help you to ensure that you are on the right track towards achieving your financial goals.

Let us start by enumerating what you should do as part of the Annual Financial Health Check:

1.        Check adequacy of Liquid Funds:

Check and ensure that you have adequate liquid funds in your savings bank account or liquid mutual funds to take care of your next 3 months Housing Loan EMI, living expenses and other emergency fund requirements.  If you can afford, slowly start increasing the emergency corpus to 6 months of Housing Loan EMI and living expenses.  This gives peace of mind to meet any unforeseen situations like loss of job, temporary disability etc.,

2.        Check adequacy of Insurance needs:

It is very important to do an annual review of life insurance requirements to make sure that the bread winner is adequately insured so that the family can be financially independent in the absence of breadwinner.  If big ticket loans were taken during the year, like housing loans, it is important to increase the life insurance to that extent immediately.

Similarly, review your medical/health insurance cover on a yearly basis to ensure that you and your family are adequately covered at all times for any hospitalisation expenses.  It can be either through your employer or through a stand-alone health insurance policy.  With the rising cost of health expenses and frequent job changes, it is possible that the health insurance coverage would have undergone a change compared to the previous year.

Use the annual financial health check up to increase your health insurance coverage.  For people who are in employment, it is highly recommended that you obtain a health insurance policy outside of your employment, create a credible medical history as soon as possible.

3.        Completeness of your Investment records:

Check and ensure that all your investments are properly documented and you have collected the latest holding statement for each of your financial assets.  It can be your mutual fund investments, ULIPs, PPF deposits, Employer Provident Fund account, NPS account, Fixed Deposit receipts, tax free bonds certificates etc.,

Make sure you create an inventory of all your investments with details of Folio Number, Nominee details, mode of investment, contact person in your absence and discuss it with your spouse, parent or any close family member/friend.  It can be a time consuming exercise, but it is highly recommended on annual basis.

4.       Secure your Real Estate Investments:

Many of you would have real estate investments across different parts of the city or even in different cities.  Take some time to visit your real estate investments, particularly plots in far flung corners of the city and ensure that there is no encroachment.  This would also give you an idea of how the area has been developing since you visited last time.

In addition to the site visit, it is also important to check and ensure that all the sale deeds are available in one place.  Obtain copies of the sale deeds in soft copy form and store it in cloud storage or in an external hard drive.   You may even obtain Encumberance Certificate (EC) for your properties online once in 3 years to ensure that there is no change in the ownership records with the Government agencies.

It has been repeatedly clarified by various legal experts that Patta is the most important of documents with regard to real estate investments.  So make sure that you have the Patta transferred in your name for all your real estate assets or start taking steps to obtain it.

You should also ensure that you have paid the municipal/corporation tax dues on a regular basis.

5.       Create a calendar of financial assets maturity and due dates:

Various investments like Fixed Deposits, Mutual Fund SIPs, National Savings Certificates (NSCs) which mature during the following year, insurance premium due dates should be properly entered in a calendar for timely renewal/reinvestment of the same.  Create a calendar reminder entry in your email program or mobile phone to keep track of maturity dates.

6.        Check your annual income tax returns:

In the beginning of the financial year in April, employer would ask you to provide the investment declaration.  You complete the investment declaration and submit it on time to avoid higher tax deduction by your employer.  At the end of the financial year in March, you should download Form 26AS (which is commonly available through your net banking facility or from the Income Tax Department site) to make sure that all your Taxes Deducted at Source (TDS) are completely accounted.  Follow up with your employer or whoever has deducted tax on your income to provide you with Form 16/16A respectively to enable you to file your Income Tax returns.

Make sure that you have submitted your annual tax returns for the previous year before the due date to claim refunds due, if any, as well to carry over your losses.

7.        Evaluate and re-jig  your Asset Allocation:

Annual Financial Health Check is the appropriate time to check how your investments have performed and whether your portfolio needs any re-balancing.  Various investments assets would have given returns during the year and a result of that, your recommended/desired asset mix would have got changed.

You should re-balance your portfolio to go back to your intended asset allocation on a periodic basis to ensure that you are in the right track to achieve your goals.

8.       Update your Will:

You should use the annual financial health check up to create a Will if you have not done it so far.  If you have already created a will, you should check and ensure that all your assets are included in the will with clear identification of the intended beneficiaries.  You should take this opportunity to change the beneficiary or the executor to ensure seamless transfer of assets.

9.       Evaluate your credit card spends:

These days most of the credit card issuers provide your graphical details of your spends during the year across various categories like food, clothing, dining, travel etc.,  Take a look at your spending habits over the past year and identify areas which can be reduced or avoided.  Remember a penny saved is penny earned.  Set clear benchmarks for each of the category for the next year.

10.    Get rid of the unwanted:

The most important but the difficult of the lot is to let go off things which you don’t require. For example, you may be carrying 5 credit cards or operating 4 bank accounts or having more than 2 demat accounts etc., All these cost you money to maintain them.  A credit card would have annual charges, a demat account would have AMC charges and bank accounts with the associated minimum balance requirements and debit cards would involve charges as well.  So, critically evaluate your requirements and close your unwanted savings bank or demat accounts.

Surrender credit cards which you have not used in the last 6 months.  This not only saves your hard money but allows you to improve your credit score in the long run.

Summary of Actions as part of the Annual Health Check up

S No Description of Action
1 Check adequacy of your emergency/liquid funds corpus
2 Check adequacy of your insurance needs like life, health, disability etc.,
3 Completeness of your investment records
4 Secure your real estate investments
5 Create a calendar of maturity and due dates for financial assets
6 Check you annual Income Tax Returns
7 Evaluate and re-jig your asset allocation
8 Update your Will
9 Evaluate your credit card spends
10 Get rid of the unwanted

By doing all these things, you would be fiscally fit and agile to move ahead in your financial life.