Layoffs are alarmingly frequent now. After Twitter and Meta, reports are emerging that Amazon now plans to retrench 10,000 employees. Back at home, startups, particularly in the Edtech space, continue to hand out pink slips.
Layoffs psychologically devastate employees. An abrupt stop to monthly income compounds the problems, particularly if you have debts such as home loan or auto loan to repay.
As reports of layoffs repeatedly hit headlines, many rush to buy insurance cover against job loss in the hope that it may safeguard finances in the event of losing the job.
There are specific insurance plans that promise to cover this risk. But it is not the best approach.
An insurance policy may not work the best because most policies in this space cover involuntary job losses only.
For an employee, it is difficult to prove that job loss is not voluntary. Instances of employees being asked to resign are not rare.
But it will be injudicious to not renew existing insurance plans for such cover can come handy in case prolonged unemployment. Medical insurance is an apt example.
Retrenched employees will be in further shock when tax personnel knock on their door. Tax officials come calling because the severance package is taxable.
But they claim exemption on meeting certain conditions which are best explained by tax consultants.
For example, leave travel allowance part of the severance package is deductible from taxable income.
In these times of job insecurity, working executives need to follow a prudent approach to personal finance to limit the damages in case of their retrenchment.
Loan repayment will be the hardest part. Devising a debt repayment strategy while in job is therefore essential. Personal finance experts suggest building a contingency fund that can take care of three months of loan repayment.
It is the contingency fund that will stand in good stead in the troubled times.