GenZ and finance: Layoffs to continue in 2024 – Here’s how to be financially prepared

• Building an emergency fund of 6-12 months of expenses is crucial as layoffs become common.
  
• Once the goal of 50% of emergency funds is achieved, one should start investing for the long term.
  
• It is important to take health and term insurance to protect oneself against any eventuality.
  

Bangalore based software engineer Soham Chatterjee, 24, started his career with a startup last year. He gets a salary of ₹50,000, and since he had to relocate and has to pay rent, he has to look closely at his expenses.

Chatterjee and many others of his age, may have to deal with another grim possibility. 2023 has been in news because of layoffs and the situation in 2024 could also be similar.

However, the layoffs may be more sector specific. “The likelihood of layoffs in India in 2024 is unlikely except for specific sectors being affected. Over 35,000 people have lost their jobs at Indian startups in the last two years. Job cuts might be expected to continue in the startup space into 2024 in the pursuit of profitability,” says Kartik Narayan, CEO of Staffing Firm, TeamLease Services, a staffing solutions firm.

“The driving factors behind these anticipated layoffs include the need to reduce costs, the anticipation of an upcoming recession, the desire to increase profits, and the integration of AI, which is replacing some job functions,” he adds.

According to a spokesperson of Adecco, a provider of human resource solutions, while some tech and financial sectors may still adjust, overall expectations are much calmer. Some tech sub-sectors like venture-backed startups and non-essential financial services like wealth management might see targeted layoffs. In such a situation, it is important to have one’s financial house in order, especially for the GenZ who are most likely in their first jobs and have never seen layoffs before.

Building an emergency fund

As the same suggests, an emergency fund comes in handy during an emergency, like a job loss. GenZ folks would not have home loan EMIs or expenses related to kid’s education, but they would have student loans or loans on gadgets. An emergency fund will help one tide over such expenses.

The thumb rule is to build an emergency fund of six months’s monthly expenses. “Before Covid we were looking at six months of your expenses as an emergency fund, now we are looking at 12 months,” says B. Srinivasan, director and founder, Shree Sidvin Investment Advisors.

Even if they have taken a phone on EMI, that should be included in one’s expenses.

“So the rule is to divide the salary into one third and two-thirds. One third of income should be compulsorily saved and it should go towards building an emergency fund, it should not go towards long term savings. Till 50% of the corpus is achieved, one should not do any long term investments,” says Srinivasan.

Also, 50% of any incentives or bonus they might be getting should be earmarked for emergency funds.

Where to park your emergency funds: One may keep the emergency funds in their savings account. However, it is recommended to park it in liquid funds for a slightly higher return.

Srinivasan suggests that one keeps two months of one’s expenses in a savings bank account and post that invest it in conservative hybrid mutual funds which invests primarily in FD like instruments, with some exposure to stocks.

Starting investments Financial planners generally advise that once the goal of 50% of emergency funds is achieved, one should divide the one third of income into two parts. One should go towards emergency funds and the rest should be invested.

“Start mutual fund sips for your goals. Investing directly in stocks or trading is absolutely fine but always have your goals sorted with mutual funds or index funds,” says Ananth Ladha, founder, Invest Aaj for Kal, a financial planning firm.

Getting insured

Getting insured is also a requirement of the times. The employer would provide health insurance coverage, but that will not be there in case of a job loss.

“Take term and health insurance in time. Term plan is needed only up to 60-65 years, buying a whole life policy won’t make sense in financial terms,” says Ananth Ladha. A term plan would be available at a very reasonable premium at this age.

We live in uncertain times and layoffs are not going to go away. However, maintaining financial discipline is important to be prepared for a rainy day.