Summary of this article
Emergency fund should cover six to 12 months of essential expenses
Experts advise preserving capital through liquid funds and fixed deposits
Discretionary spending must reduce sharply after sudden job loss
High-risk investments can worsen financial stress during unemployment periods
A job loss always comes as a shock, as there are regular expenses that continue. At this moment, if someone has an emergency fund or some cash in the bank, such as a few lakh rupees, it can help. That is the reason why experts always suggest building an emergency fund. But assuming that you have funds, how do you make them last longer? We take a look at how you should prioritise emergency funds, savings, and investments.
Focus On Preserving Capital And Meeting Basic Needs
Preserving capital should be the topmost priority for an unemployed individual, and they should immediately segregate a minimum of six to 12 months' worth of fixed essential expenses into an emergency fund using highly liquid instruments.
“The priority for anyone not having any regular income is to ascertain their fixed expenses, as these are unavoidable. Such expenses may include not only essential items, such as rent, bills, groceries, etc., but also any equated monthly instalments (EMIs) that need to be serviced,” says Thomas Stephen, director and head - preferred, Anand Rathi Shares and Stock Brokers.
To start with, it is critical to set aside some amount specifically for “emergencies”. This amount should ideally be easily accessible and with no risk to the capital, such as a bank savings account. “One can look to keep anywhere between 10 per cent and 20 per cent of the corpus in this bucket. Next, the person may look to allocate 50-60 per cent of the entire corpus for funding the identified fixed expenses,” says Stephen.
“They can temporarily deprioritise growing the corpus, which means they can stop any existing new long-term investments and these investments can resume once they find employment,” says Abhishek Kumar, a Securities and Exchange Board of India-registered investment advisor (Sebi) RIA, and founder and chief investment advisor of SahajMoney, a financial planning firm.
Cut Discretionary Spending
“Discretionary spending should be cut drastically from day one of unemployment to maximise the utilisation of the existing cash corpus,” says Kumar. So expenses like eating out need to be reduced or cut altogether.
In case of an ongoing loan, they can also explore debt restructuring and start negotiations with lenders regarding moratoriums once it becomes clear that the employment gap will extend beyond a few weeks.
Waiting until savings are exhausted eliminates financial leverage and increases the risk of default, making early proactivity essential.
This tenure can be a difficult and uncertain phase, with no assurance of when regular income will start again. “Hence, one should prepare for worst-case scenarios and ensure there is enough runway with their current savings that would suffice for at least the basic and fixed expenses for a prolonged period,” says Stephen.
Keep Your Money Safe
The vast majority of the corpus must be maintained in liquid and safe avenues like liquid funds or short-term fixed deposits to ensure immediate accessibility.
Allocating money to medium-term growth assets like equities or hybrid funds is highly risky during a job loss phase, as a market downturn could force the liquidation of investments at a severe loss to cover basic survival needs.
The remaining balance above the emergency corpus should be kept in low-risk and accessible instruments to cover ongoing essential living costs and insurance premiums.
FAQs
How much money should someone keep aside after losing a job?
Experts generally advise setting aside at least six to 12 months’ worth of essential expenses in highly liquid and low-risk instruments.
Should investments continue during unemployment?
Financial planners say preserving capital becomes more important than wealth creation during this period, so long-term investments may be temporarily paused until income stabilises.
Where should unemployed individuals keep their savings?
Most of the money should remain in safe and easily accessible options such as savings accounts, liquid funds, or short-term fixed deposits instead of volatile assets like equities.
