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Can You Afford To Lose Your Job?

Subra from talks about a tough situation with a person he knows:

He bought a house in Navi Mumbai for about Rs. 80 Lakhs, – of this about Rs. 55 lakhs was funded by a loan from the State Bank of India. Over the last 4 years he had paid a lot of interest, but the principal outstanding was still Rs. 52 lakhs.

He was also doing some SIPs which had seen an amount of Rs. 33 lakhs, but now in this market was worth Rs. 30 lakhs – not too bad, but the IRR was not too great. He does not have any debt investments except his LIC endowment policies – and all the policies are together worth Rs. 30 lakhs.

So far fine. He just lost his job with effect from December, 2011 or Jan 2012…..

He will have to find a new job, NOW and immediately.

What is at stake?

Household expenses (including children’s school fees) …….Rs. 100,000

EMI                                                         Rs. 52,000

His needs are as follows:

Rs. 1.5L x 12 = Rs. 18L – assuming he gets a job in 6 months, he will need Rs. 9 L.

The comments are interesting – asking him to sell his house, or to reduce his expenses and so on.

The main takeaway to me is: Can you afford to lose your job?

No one likes the answer and everyone thinks they’ll manage somehow. After all, one has a degree or experience or friends or close contacts like Dr. Vijay Mallya (“Viju, we call him”). But there are moments – too often to be an outlier – when a job loss comes and hurts everyone. I have some idea how it feels because being an entrepreneur can be equivalent to joblessness, in the sense that you don’t get a salary. I have fired myself – twice – and honestly I love me for it, no regrets.

I ask you to imagine, for a moment, what it would be like.

  • Your company has a huge problem – let’s just say some of its biggest customers went bust in some kind of market carnage. You’ve been asked to leave, with the general statement that “it’s not you, it’s the market”.
  • At first, you’re shocked. No one fires me. You wonder what you’ll say to other people. You justify it initially with the “I hated it anyway” excuse, which is probably quite true. But after a drink you admit it was on the cards. (hardly anyone ever gets fired that didn’t know it was coming)
  • Then you realize you have no idea what you spend, and how much you’ve saved. You gather together all of those statements and excel sheets and severance packages and take a good hard look.
  • Do you like what you see?

What have you done, to prepare for a job loss? How do you handle, specifically:

  • Stuff you absolutely can’t do without, like children’s school fees, food, rent/EMI for the 6 months it will take you to find a job.
  • Will you cut expenses? To the extent of dramatically changing lifestyle? (Like selling your car and taking public transport instead)
  • Given the emotional damage you’ve had, can you take a holiday? or are you leveraged to the point that even a month of no income will create a crisis?
  • How many months can you survive?

I’ll do a follow up post.

  • Ramanand says:

    Your post is timely, better late than never. The crises in US and Europe will decimate high paying Indian jobs in the private sector. You may not see it yet, but I can see it happening, the cards are all lined up to fall like dominoes. IT and Export industries will be the first, followed soon after by Finance and Real Estate. We may even see deflation and recession as hundreds of thousands of people will lose their jobs. It would be a good thing to have an alternate skill or ability in such situations. Some of the lost jobs may never return in our working lifetime!

  • Mehul says:

    Ok, get the follow-up post soon Deepak, This post has a potential for highest comment generator!

  • Jagdish says:

    I have been planning a sabbatical for myself for some time. i have come to a point where i simply hate working.
    As my company where I work now doesn’t have any policy on sabbatical, I will have to resign and kind of self finance it.
    so i have been saving from months now and have accumulated for 6 months survival inclding EMI and School Fee.
    I have noticed current rental for my house is 15,000 against EMI of 22K. In a years time rental will be same as EMI. So house will finance itself. it will be on auto pilot kind off.

  • Rudra Chowdhury says:

    The problem again highlights the importance of a “Contingency Fund” which is meant for just this kind of situations.
    Ideally one should start off with a cash fund ( in bank accounts/short terms debt funds) covering 6-12 months of expenses. As and when your expenses rise one needs to top up this fund proportionately.
    Only when you are done with this and necessary life and health insurance should one consider leverage ( home loan, car loan, personal loans,…..)
    The root cause of any financial mess be it for individuals, companies or even countries boils down to one word……..leverage.

  • Murty says:

    Dear Deepak,
    “Man is born free, but bounded in chains….Always”—–Voltaire.
    Please enlighten people who are falling prey to dubius deals.Almost 90% of the people are falling into such debt traps, with unsecure future income, and life dominated by Greed.It is not even a RISK, it is lack of common sense.
    Look at Mr.MD.
    An 80L house?
    At the age of 52, he spent 25L as advance and took a 55L loan? what sort of a man we can imagine? And what a bank that offered the loan? Very generous under the presect circumstances.Very Callous on the Customer part too.Something is terribly wrong with this man or, Subramony introduced a ficticious character/case.
    The loan of 55L @8% interest 4 years back would have that EMI of Rs.52000, for a 15 year loan.But the present EMI?????
    Which bank was that generous for the past 4 years?
    1L expenses per month? our MD might be MD of a big company.Now I am worried about that company too…..