COVID-19 Impact: Are You Financially Strong In Case Of Job Loss

Are You Financially Sound In Case Of Job Loss During COVID-19 Pandemic

We are going through hard times. The COVID-19 pandemic has halted business operations across all sectors globally. Businesses are compelled to hit badly till the end of this month at least due to restrictions and lockdowns imposed over 80 districts across the nation. This situation has increased the fear of job losses and salary cuts as no one knows how long the pandemic would last. 

Before December 2019, nobody expected that the COVID-19 pandemic would cause unusual human and economical damages. As we started to spend more time working from home and some state governments across the country even locking down cities, the question is how long would our employers continue to pay us our salaries? Will our companies even survive? According to the International Labour Organization (ILO), about 25 million people worldwide would suffer job loss due to COVID-10 spread.

Depending on income and monthly expenses, salaried people fall into three categories.

• Those who have sufficient money to pay for expenses, including EMI on loans and invest continue.
• People who can manage their expenses but are expected to fall short of money to continue investing.
• People who can hardly afford to manage their expenses or may struggle.

In the first category, people need not worry about their expenses. But, those in the 2nd and 3rd categories will have to do a few things to overcome this difficult situation.

Many of us are totally dependent on our monthly salaries to pay one’s loans. What if you end up losing your job because of the sector in which you work is not performing well and your company is firing people to cut costs?

In case of such an unexpected event, you might not be able to pay your financial obligations, at least for the meantime. It would be easier for you to pay loans of small amounts like automobile and personal loans. However, borrowers of home loans, which is often large in size, might find it difficult to pay the EMIs in case of sudden job loss.

But, What If You Have Not Prepared Yourself For A Situation Like That?

Consider The Probability Of A Pay Cut

First and foremost, be aware of the possibility of a pay cut. Even when the employers or organizations may not want to fire their employees, the gradual reduction in resources may force them to cut pay temporarily. If there is any possibility of a pay cut, the earlier you know about it the better you will be able to plan.

Avail Moratorium On Loans

If you are finding it difficult to pay for expenses and EMIs after a salary cut, you should avail of the moratorium facilities being offered on all retail loans. On 27th March 2020, the Reserve Bank of India (RBI) permitted banks and other financial institutions to allow borrowers a 3-month moratorium on all types of loans outstanding as on 1st March 2020. The moratorium is applicable to loans in which customers are paying either EMIs or Pre EMIs. However, the interest, at the applicable interest rate, shall continue to accrue on the outstanding portion of the loan during the moratorium period.

Stop Investments

You need to temporarily stop investments because the more important thing is to get your daily need items to survive. The salary cut is not permanent. Sooner or later it will bounce back to its original level. It is also possible that organizations cutting salaries will compensate thor employees by giving them a bonus.

Yet, the Systematic Investment Plan (SIP) of Mutual Funds can not be stopped immediately and withdrawals, too, take time. Asset Management Companies require 15-30 days to stop SIPs.

Reduce Your Monthly Expenses

One of the best ways to control the difficult situation is to reduce your monthly expenses. Estimate where you can spend less. Due to lockdown, your entertainment expenses must be reduced as restaurants, malls, shopping centers, and cinemas are out of bounds. Use this opportunity to uncover some of your savings towards your emergency funds.

Manage Loan EMIs

In case you are repaying your EMIs, do not stop them due to a job loss and talk to your lenders about your job situation before stopping the monthly installments as it could impact your credit score and history. Try to meet your loan commitments from existing investments or selling physical assets such as gold, property, etc. You can also request to your lenders to increase the tenure of your loan, which in turn will reduce your EMI obligations. 

Use Your Savings

Use your Fixed Deposits(FD) or Recurring Deposits (RD) to make the payments of your EMI payments as the interest you currently get on those deposits would be much less than the interest you would pay on your home loans.

Take Support From Your Family & Friends

Borrowing from your family members and friends who are in a position to lend you money, for the time being, could be another good option in this situation as you won’t have to pay interest on the amount. Even you won’t have to pay penalty charges on the amount if you are not able to pay within a specified time.