As the global economy continues to suffer, more and more of us are worrying about our financial wellness. Whether you’ve lost your job or suffered a major business loss, it can take a real toll on your mental health – so how do you cope? According to Amar Pandit, founder of My Financial Advisor, ‘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.’ So what does Pandit recommend?
1. Damage Control: ‘The first step is to overcome the emotional imbalance and stress that you might be experiencing now,’ says Pandit. ‘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.’
2. Communicate with Your Partner: Pandit points out, ‘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.’
3. Take Inventory: ‘Take an inventory of employer benefits you may have,’ Pandit instructs. ‘This could be in the form of a provident gund, gratuity, pending reimbursements or any severance benefits.’
4. Calculate your net worth: Pandit outlines, ‘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.’
5. Know Your Expenses: ‘Understand your mandatory and variable expenses and reduce discretionary expenses by as much as you can,’ Pandit advises. ‘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.’
6. Look at Your Insurance: Pandit details, ‘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…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.’
7. Evaluate Funding Sources: ‘Examine all sources of funding in case of shortfalls,’ says Pandit. ‘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.’
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