Are You Prepared for the Months Without a Salary?
Stay Financially Secure Even During Periods Without Income
Srinivasan S.,
Personal Finance Professional,
Ducatz Finserv Ph: 995 260 4444, ARN: 64151
One Day,
the Salary Stops...
“What would you do if your salary did
not come next month?” Ravi asked a friend one day.
“That will
never happen. I have a job!” his friend replied with a smile.
But a few
months later, Ravi lost his job because of changes within the company. That was
when he realised an important financial lesson: It is not enough to plan your life only around the months
when you receive a salary. You must also prepare financially for the months
when there is no salary.
Salary is
the primary source of income for many families. If that income suddenly stops,
essential expenses do not stop with it. House rent, loan instalments,
children’s education, medical expenses, electricity bills and other household
expenses continue as usual.
That is why
every family needs a financial
plan for periods without income.
Why Can
Your Salary Suddenly Stop?
Job loss is
not the only reason for a sudden loss of income. Downsizing, health-related
inability to work, business losses, a break between jobs, a temporary
interruption in self-employment or leaving a job because of family
responsibilities can all lead to a temporary reduction or complete loss of
income.
Retirement
is another stage when regular salary income comes to an end.
Therefore,
it is important to prepare for periods without salary while your income is
still regular.
First,
Calculate Your Essential Monthly Expenses
The first
step in preparing for a period without salary is to understand how much your
family needs every month for essential expenses.
List
unavoidable expenses separately, such as house rent or home-loan instalments,
food, electricity, children’s education, medical expenses, insurance premiums
and essential travel.
|
Expense |
When
Salary Is Coming |
When
Salary Stops |
|
Household expenses |
Normal level |
Essential level |
|
Food |
Regular spending |
Controlled spending |
|
Loan instalments |
Must be paid |
Must continue |
|
Insurance |
Must be paid |
Must continue without interruption |
|
Entertainment |
As desired |
Can be temporarily reduced |
|
Investments |
Can continue |
Can be adjusted depending on the situation |
This
exercise will help you identify where expenses can be reduced during a period
without salary.
How Much
Emergency Fund Should You Have?
As a general
guideline, maintaining an emergency fund equivalent to at least six months of essential
household expenses can provide financial support during an
income interruption.
People with
less stable employment or families dependent on a single income may consider
keeping a larger emergency fund depending on their circumstances.
For example,
if a family’s essential monthly expenses are ₹50,000, an emergency fund for six
months would be ₹3 lakh. If the family wants to maintain expenses for twelve
months, the required amount would be ₹6 lakh.
The
emergency fund should generally be kept in relatively safe and easily
accessible options, such as a bank savings account and suitable liquid mutual
funds, rather than in high-risk investments.
Do Not
Confuse Your Emergency Fund With Your Investments
Money kept
for emergencies and money invested for long-term wealth creation serve
different purposes.
The value of
shares or equity-oriented mutual funds can fluctuate with market conditions. If
you are forced to sell such investments during a market downturn because your
salary has stopped, you could incur a loss.
Therefore,
the primary purpose of an emergency fund is not to generate high returns. It is to ensure that the
money is available when you need it.
Reconsider
Your Loans
When salary
stops, high monthly loan repayments can significantly increase the financial
burden on a family.
It is
therefore useful to gradually reduce high-interest debt, particularly expensive
credit-card debt and similar borrowings.
Before
taking a loan, ask yourself:
“If
my salary stops for a few months, will I still be able to manage this loan?”
This simple
question can prevent excessive borrowing.
Do Not
Depend on a Single Source of Income
If a family
depends entirely on one person’s salary, the financial impact can be greater if
that income suddenly stops.
Where
appropriate, families can consider developing additional legitimate sources of
income, such as part-time work, consulting assignments, rental income or income
generated from professional skills.
However, an
expected additional income should not be treated as a substitute for
maintaining an adequate emergency fund.
Build Your
“Income Interruption Fund” While You Are Earning
The best
time to prepare for months without a salary is when your salary is still coming
regularly.
Every month,
you can set aside a specific amount towards an “Income Interruption Fund.”
Saving is
easier when income is regular. Trying to save after the income has stopped is
much more difficult.
Therefore,
make it a habit to allocate money towards your emergency fund first and then
plan the remaining expenses.
The Key
Message
No one can
predict exactly when a period without salary may occur. But you can prepare in
advance so that your family does not face financial instability when it
happens.
Managing
life when the salary is coming is financial management. Being financially
prepared to manage life even when the salary stops is true financial security.
ACTION
PLAN: Prepare Today for the Months Without a Salary!
1.
Calculate Your Monthly Expenses
Write down
your family’s essential monthly expenses and arrive at a realistic figure.
2. Build at
Least a Six-Month Emergency Fund
If your
essential monthly expenses are ₹50,000, start building an emergency fund of at
least ₹3 lakh.
3. Keep It
in a Safe and Accessible Place
The purpose
of an emergency fund is not to maximise returns. It is to ensure that the money
can be accessed quickly when required.
4. Reduce
High-Interest Debt
Give
priority to reducing high-interest loans, including expensive credit-card debt.
5. Continue
Your Insurance
Even if your
salary stops, keep enough money aside to pay premiums for health insurance and
other essential insurance policies.
6. Identify
Unnecessary Expenses
Make a list
of subscriptions, entertainment expenses and other discretionary spending that
can be temporarily reduced or stopped during a period without income.
7. Develop
Skills for Additional Income
Think in
advance about legitimate additional income opportunities that can be created
using your experience, professional skills or knowledge.
8. Review
the Plan Once a Year
Review your
emergency fund whenever your family expenses, loans, insurance requirements or
children’s needs change, and increase the fund accordingly.
Remember:
“Saving
while your salary is coming is a habit; being able to manage your family even
when your salary stops is financial security.”
For More details and Investing
Srinivasan S.,
Personal Finance Professional,
Ducatz Finserv
Ducatz
FinServ operates in Chennai and Tiruppur and is founded by Srinivasan
Subramanian, who serves as its Chief Personal Finance Consultant. He has over
13 years of expertise in personal financial management. He specializes in
personal finance, comprehensive financial planning, insurance planning,
budgeting, investment advisory, and wealth management.
Currently,
he provides financial guidance and support to more than 250 families, helping
them improve their financial stability and growth. Beyond individual client
services, he is deeply committed to promoting financial awareness within the
community. He also conducts financial literacy certification programs and
training sessions for college students through institutions and independent
classes, empowering young individuals with knowledge about financial discipline
and money management.
Read articles written by Mr. Srinivasan
S. in Nanayam Vikatan, a leading personal
financial management magazine. https://bit.ly/4r0Mlbp
To learn more about Savings... Investment... Goal! (சேà®®ிப்பு...
à®®ுதலீடு... இலக்கு!) the
book written by Srinivasan Subramanian and published by Vikatan Publications. Read
the Book Review
AMFI
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on (+91) 995 260 4444
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related
documents carefully. The past performance of the mutual funds is not
necessarily indicative of future performance of the schemes.
