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20 May 2020 by Pradeep U
10 Ways to Deal with Pay Cut or Job Loss - Research & Ranking

Covid-19 has put a massive strain on our economy. While on one side, it has claimed many lives and put heavy pressure on our already fragile health care system, on the other hand, the associated lockdown has thrown the lives of many individuals out of gear. Read more about how life will change in after Covid-19 here.

Pravin Rai (name changed), a software engineer employed with an IT major in Bengaluru was not surprised when he got a pink slip in March by his employer citing revenue declines due to non-renewal of contracts by their off-shore clients.

With massive job layoffs and low recruitment across the IT industry these days, Pravin is clueless about his next move. Luckily his wife, Sneha, also employed in the IT sector, managed to escape with a minor pay cut.

Like Pravin and Sneha, there are millions of people in India today from diverse sectors including hospitality, travel, financial services and manufacturing who have either lost their jobs or facing a pay cut.

When a person loses his job, the biggest problem he faces is piling up of monthly bills for telephone, rental, electricity, grocery and school fees of children. The situation becomes worse if there are outstanding dues on credit cards, or EMI's for home or car loans. 

Lack of money in such turbulent times can cause arguments and fights in the family too. I sincerely hope that such situations should not happen in anyone's life.

Beyond the loss of income, losing a job also comes with other significant losses which are even more challenging to face, such as loss of professional identity and loss of sense of security.

According to the latest data published by the Centre for Monitoring Indian Economy, 27 million youth in the age bracket of 20-30 years lost their jobs in April 2020 following the nationwide lockdown.

Here’s what you should do if you have lost your job or facing a pay cut

#1. Don’t panic

A person with a calm and composed mind can overcome any difficulties in life. Remember a loss of job or pay cut is not the end of the world. Use this time to polish your skills, so you can rebound with a bigger force.

#2. Use your emergency savings

The golden thumb rule of financial planning is to set aside at least 3 to 6 months of your monthly expenses in the form of an emergency fund. So, in case you have an emergency fund, this is just the right time to dip into it to buy the essentials and pay off your outstanding bills. Do remember to use it wisely if you don't have a huge emergency fund because every bit counts.

#3. Evaluate your monthly expenses and find ways to reduce them

Once you have started using your emergency savings, your next step should be evaluating your monthly expenses and finding ways to reduce them.

Of course, nondiscretionary expenses such as rent, utilities and groceries are unavoidable. Still, you can cut down or do away with unnecessary costs like online subscriptions and ordering out.

#4. Make use of the 3-month EMI moratorium for your loans and credit card dues

RBI has offered a 3-month EMI moratorium which includes all term loans like home loans, personal loans, credit card dues etc. By using this 3-month EMI moratorium, you can skip any monthly instalments which are due from 1 March 2020 to 31 May 2020. However, if you have built enough contingency, then you may opt for timely payments as delaying your debt expenses is usually not the best practice.

#5. Sell the stuff you don’t use

Most of us have things which we bought but hardly use. It could be a bicycle, treadmill or even a guitar. Just look around your house for those things which you never use or don't intend to use and sell them either online or in a garage sale. The money you earn from this may not be huge, but even small amounts can add up to something meaningful over time. Besides, there is also a plus side to this in the form of a less cluttered house.

#6. Upgrade your skills

Consider this situation as an opportunity to reinvent yourself. Learn new skills which you think may supplement your existing talents and qualification, making you more employable.

To quote an example, a few decades back when computers took over from typewriters, the job openings for typist became extinct. But that did not mean that all those people employed in typist jobs were fired overnight. Majority of them upgraded themselves with the skill sets required to operate computers and re-established themselves in their new job profiles.

#7. Look for ways to earn extra cash

Make full use of your skills and hobbies to generate additional income. It could be anything ranging from conducting hobby classes to teaching a foreign language or taking tuitions.

#8. Use your credit card wisely

The built-in buy now, pay later feature of credit cards may appear very tempting during such times. However, don't forget that an unconstructive debt and poor management of credit cards can result in piling up of debts. If you have already have a considerable amount outstanding, keep your card aside and use it only in extreme emergencies.

#9. Don’t stop your insurance

Don’t stop paying the premium for your life or health insurance. It is a necessary expense which can save you a lot in future. If you have been depending on your health insurance policy provided by your employer, don’t forget that post job cut, the cover would also cease.

#10. Don’t touch your long-term investments

Don’t dip into your long-term investments which you have set aside for long-term goals, like retirement or child’s higher education. Instead use your short-term investments if any, along with your emergency fund. Remember the current situation is temporary, and in no way, it should impact your long-term goals.

The Bottom Line

Losing your job suddenly can be a worse experience than a pay cut. And yes, it can be a disturbing experience for most. However, the good news is that these ten simple steps can help anyone to avoid a financial mess in such testing times.

It is said that adversity brings out the best in man. Life is unpredictable, but with the right preparation, anyone can turn a potential financial tragedy into a temporary setback and better tomorrow.

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