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Mass Layoffs at Startups: How to insulate your finances against career setbacks   

The startup space has seen hundreds of employees losing their jobs as funding crunch begins to pinch founders. An emergency fund and health insurance cover are a must to tide over such crises.

June 18, 2022 / 11:01 PM IST
Representative image

Representative image


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.

Coming soon on the heels of the Great Resignation and talk of tech companies struggling with high attrition rates, the latest unsavoury development has taken many employees by surprise.

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.

Also read: Lay-offs, shutdowns, funding crunch: The great Indian party is over

Curb your expenses; reimagine your spending

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.

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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

If you have been completely dependent on your employer-sponsored group health insurance policy so far, it’s time to buy an independent one as soon as you can, even if it means having to compromise on other expenses. “This cannot be emphasised enough. An adequate, individual health insurance is an absolute must,” says Mumbai-based financial planner Sujata Kabraji. COVID-19 highlighted the importance of independent covers like never before, and the demand indeed went up. However, many continue to rely solely on their employers’ covers, putting themselves and their parents at a huge risk.

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.

How to deal with job losses

Carve out a contingency fund

An indispensable part of a well-thought-out financial plan at all times, this is meant to come to your rescue at times like these. Traditional wisdom suggests that it should be capable of covering at least six months’ outgo, including household expenses, medical emergencies and EMI obligations. However, since COVID-19, financial planners are advocating a larger kitty.

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.

Also read: COVID-19-induced job loss: Fix money matters to sail through all contingencies 

Dip into your long-term savings as the last resort

You can look to curb your household and personal expenses to deal with income loss post a lay-off, but your EMI commitments, for instance, are non-discretionary. Defaults will invite notices from your banks, besides pulling down your credit scores“If you have not worked towards creating an emergency corpus, you may have no choice but to turn to your savings,” says Rushabh Desai, adding that you should think twice before withdrawing from your retirement-oriented investments. “If you must redeem, look at breaking fixed deposits or redeeming your liquid fund investments. Make withdrawals from your employees’ provident fund (EPF) only if you have exhausted all other options,” he adds. This is because it can set the entire retirement planning process back by years — something you may not be able to make up for after you land another job.

Re-look your financial goals

When you have a job that pays you a regular, even high, salary, you dream big. You dream of buying an expensive car, want to go on a foreign holiday and so on. But in times of job losses, it's better to re-think your financial goals. Keep your financial goals, realistic. Save what you really need and for the time being, do not set aside money for lofty goals you could do without.

Don't wait for that perfect jobJob losses are tough and hard to digest. And when global economic conditions are challenging, it might take more time than expected to find another job. In the meantime, you could take up consulting or freelancing jobs, even if it means a lower pay. Till you find a full-time job of your liking and at a salary you think you deserve. Keeping yourself occupied also ensures that some money comes into the household and your resume doesn't show a gap.
Preeti Kulkarni is a financial journalist with over 13 years of experience. Based in Mumbai, she covers the personal finance beat for Moneycontrol. She focusses primarily on insurance, banking, taxation and financial planning
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