\n\tStart by settling all accounts with the employer. \u201cVerify that provident fund, gratuity, retirement-related payments and other amounts due are received on time and in the correct amount,\u201d says Renu Maheshwari, Sebi-registered investment advisor, co-founder and principal advisor, Finscholarz Wealth Managers. Also assess the tax implications of the cash flows received on termination.\u00a0<\/p>\n
\n\tNext, estimate the household\u2019s minimum monthly expenditure. List unavoidable expenses such as rent, groceries, transportation, education and medical bills.\u00a0<\/p>\n
\n\t\u201cDo not restrict the exercise to monthly bills. Include annual expenses falling due over the next 6 months, including health and life insurance premiums. Other bills and subscriptions necessary for day-to-day functioning should also be factored in,\u201d says Maheshwari.\u00a0<\/p>\n
\n\tOnce the expenditure estimate is ready, take stock of liquid and relatively liquid assets. These could include bank balances, fixed deposits, liquid funds and debt mutual funds.\u00a0<\/p>\n
\n\tCompare the available financial resources with monthly expenditure to estimate how long the money can last. \u201cFor a more conservative estimate of the financial runway, rely primarily on fixed-income assets such as fixed deposits and debt mutual funds. Equity mutual funds are less dependable for this calculation because their value depends on market conditions,\u201d says Maheshwari.\u00a0<\/p>\n
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\n\tCut expenses selectively<\/strong>\u00a0<\/p>\n
\n\tDiscretionary spending should come down after a job loss. Vacations should generally be postponed or cancelled. Purchases of luxury products and spending on upgrading or furnishing the house should be postponed.\u00a0<\/p>\n
\n\tDining out, movies and similar entertainment expenses should be reduced, though not eliminated completely. Their frequency can be cut depending on the household\u2019s financial position.\u00a0<\/p>\n
\n\t\u201cAvoid taking austerity too far. Excessive spending cuts can compound the psychological stress caused by unemployment,\u201d says Maheshwari.\u00a0<\/p>\n
\n\tWhen using savings to meet expenses, dip into the emergency fund first. Fixed deposits come next, followed by debt funds.<\/p>\n
\n\tRetirement savings should be protected and used only in extreme situations. Prematurely exhausting money meant for retirement can create a much bigger financial problem later.\u00a0<\/p>\n
\n\tEquity requires a more nuanced approach. It can be liquidated selectively depending on market conditions. \u201cIf markets are favourable, investors may book some profits,\u201d says Maheshwari.\u00a0<\/p>\n
\n\tPause SIPs, change asset allocation<\/strong>\u00a0<\/p>\n
\n\tSystematic investment plans (SIP) that were funded from the monthly salary will have to be paused until another job is secured or another regular income stream is developed.\u00a0<\/p>\n
\n\tAsset allocation also needs to change. \u201cThe investor\u2019s capacity to take risk falls drastically, so portfolio risk needs to come down,\u201d says Maheshwari.\u00a0<\/p>\n
\n\tThis does not mean exiting equities completely. Maintain an asset allocation appropriate to the changed financial circumstances rather than making decisions based on fear and panic.<\/p>\n
\n\tProtect critical repayments<\/p>\n
\n\tWhen cash flow becomes strained, the payment hierarchy should be based on the consequences of default rather than only on the interest rate.<\/p>\n
\n\t\u201cAmong debt obligations, secured loans such as home and vehicle loans generally warrant priority because they are linked to underlying assets,\u201d says Vinay Singh, co-founder & chief product officer, Olyv.\u00a0<\/p>\n
\n\tAt the same time, high-interest debt, particularly credit-card dues, needs early attention because the outstanding amount can grow rapidly. Protecting the credit score should remain a key concern.\u00a0<\/p>\n
\n\tControl credit card debt<\/strong>\u00a0<\/p>\n
\n\tAt the least, pay minimum dues on time to prevent an adverse impact on the credit report. However, this is not a solution: the account may remain current but the outstanding balance will continue to grow rapidly.\u00a0<\/p>\n
\n\tCredit card revolving interest can be 36-45 per cent a year. Where feasible, convert the outstanding balance into a structured EMI plan. \u201cMany issuers offer such conversions at 12-18 per cent,\u201d says Ritesh Srivastava, founder & CEO, FREED.\u00a0<\/p>\n
\n\tAct before missing a payment. \u201cOnce there is a default, issuers may tighten terms or not offer conversion,\u201d says Srivastava.\u00a0<\/p>\n
\n\tApproach the lender early<\/strong>\u00a0<\/p>\n
\n\tIf an EMI is likely to be missed, contact the lender before the due date. \u201cEarly engagement improves the possibility of reaching a workable arrangement without damaging the borrower\u2019s credit score,\u201d says Singh.\u00a0<\/p>\n
\n\tBanks and non-banking financial companies (NBFCs) may offer restructuring in cases of genuine hardship. \u201cThe options could include a moratorium of three to six months or an extension of the loan tenure that reduces the EMI by spreading repayment over a longer period,\u201d says Srivastava.\u00a0<\/p>\n
\n\tHealth insurance should be treated as an immediate priority after a layoff. Find out exactly when the employer\u2019s group health cover ends and begin exploring alternatives before there is any break in coverage.\u00a0<\/p>\n
\n\t\u201cUnder Insurance Regulatory and Development Authority of India (Irdai) provisions, migration from a group health policy to an individual or family floater policy with the same insurer is available,\u201d says Arun Ramamurthy, co-founder, Staywell.Health. Migration can help preserve continuity benefits accumulated under the group policy.\u00a0<\/p>\n
\n\tContact the insurer or third-party administrator (TPA) and request migration before the employer\u2019s group cover expires. \u201cCheck the terms, premium and sum insured of the new policy. Also confirm which family members will be covered, what continuity benefits will be recognised, and which waiting periods will apply,\u201d says Ramamurthy.\u00a0<\/p>\n
\n\tDo not assume that the replacement policy will mirror the employer-provided cover. An individual policy may offer different benefits and can be significantly more expensive. \u201cMigration is also subject to underwriting, making existing medical conditions an important consideration,\u201d says Ramamurthy.<\/p>\n
\n\t\tPros and cons of restructuring debt<\/strong>\u00a0<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 Restructuring can take the form of a moratorium, or a longer repayment tenure<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 A moratorium (pause in payments) offers immediate relief<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 But interest continues to accumulate during the payment holiday<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 A longer repayment tenure lowers the EMI and hence eases the pressure on monthly cash flows<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 But the total interest outgo over the life of the loan increases<\/p>\n
\n\t\t\u2022\u00a0 \u00a0 Some lenders also charge a processing fee of about 0.5-2 per cent of the outstanding amount for restructuring<\/p>\n