The celebrated start-up space in India is in the throes of a funding winter, with many well-known start-ups resorting to mass layoffs as part of cost-cutting.
If you are among those affected, you have no time to lose. You must take stock of your finances. Bear these lessons in mind to deal with a possible crisis.
Mumbai-based investment advisor Suresh Sadagopan, Founder of Ladder7 Financial Advisories, says that if you have lost a job, check your expenses and spending, first, before you do anything else. Things like your children's school or the nice, lavish house you've bought and living in, aren't aspects you can change, at least immediately. "But try to re-negotiate your rent, if you have been staying in a rented house," says Sadagopan.
Look at your discretionary expenses, closely. These are expenses that you can easily cut down on. Movies, holidays, lifestyle are areas where you can easily cut down; and you ought to, in tough times. Sadagopan says that for most individuals and families, discretionary spending is a "huge" component of their personal finances. For instance, if you have a car and a driver and if, for any unfortunate reason, you lose your job, there is hardly any merit to continue retaining your driver. Even the car, says Sadagopan, can go and you can use the sales proceeds. "Maintaining a car and keeping a driver can easily cost you up to Rs 40,000 a month. Instead, if you switch to cabs, you can easily bring down your commute bill to about Rs15,000 types," says Sadagopan.
Do you really need Netflix, Amazon prime, Disney Hotstar, all together? Take a relook. Perhaps it's a good idea to retain one streaming service and get rid of all other subscriptions.Buy insurance covers to safeguard family's interests
Ideally, a 40-year-old couple with kids, living in a metropolitan city, ought to have a cover of Rs 10 lakh to be able to comfortably tackle healthcare emergencies. This cover should be reviewed every five years to account for changing needs and healthcare inflation. It is best to buy separate health insurance policies for elderly parents. “While buying a health cover, you should also factor in your family history and cost of healthcare in your city,” says Kabraji. If you have had to face a lay-off, consider porting to your group insurer’s retail policy – you will get to retain the continuity benefits of your group policy when you do so, provided your proposal is accepted.
If you have dependents, buy a term life insurance cover at the earliest. You need to take into account several factors such as liabilities, assets, household responsibilities and investments earmarked for your future goals to arrive at the ideal sum assured. But as a simple rule of thumb, your cover should be equal to at least 10-15 times your annual income.
Carve out a contingency fund
Financial planner Sujata Kabraji feels it should take care of up to nine months’ expenses, while Rushabh Desai, Founder, Rupee with Rushabh Investment Services, recommends an even larger corpus that can last for up to two years. You could take a call after evaluating your family’s financial situation – if it’s a double-income family, then you can afford a relatively smaller corpus. On the other hand, if your source of income is irregular or seasonal, you are bound to need a much larger fund. You can park your money in fixed deposits (FDs) or liquid mutual funds so that they can be redeemed quickly.
Those who have lost their jobs can identify dud investments in their portfolios to build a contingency kitty. For instance, you can surrender low-yielding endowment life insurance policies that you might have purchased only for the tax benefits they offer under Section 80C. This is a better option than indiscriminately redeeming your FDs or other investments meant for medium to long-term goals.