Prudent Financial Management!!

The Indian IT/ITES Industry has been going through a lean patch recently. The constant rupee appreciation has impacted the profit margins of firms. Several firms including TCS and Yahoo have announced job cuts. This has had a sobering impact on the expectations of employees.

In all fairness the layoffs are miniscule compared to the overall employee base. However, that is of no consolation to the employees who are getting displaced!! This post looks at a few measures employees must take to be financially prepared for any temporary challenges.


1. Build up a liquid fund – this takes top priority. While job openings are available elsewhere, often we may spend a couple of months moving between positions. We should have a fund covering three months of expenses (include personal expenses and EMI payments) along with a provision for medical emergencies. While six months is ideal at the minimum we should be able to cover three months. If you have not built this then please start now ASAP.

Investing a regular amount every month in liquid mutual funds should get us going. Do not hold cash or money in a bank savings a/c. Go for liquid plus funds. They are more tax efficient.
If you have a chance to make a short onsite trip then do so Transfer the savings from the trip to the liquid fund!!

2. Diversify Assets - If ESOP/shares of the company you work for are a major part of your assets then please look at diversifying the asset base straight away.

3. Repay Existing loans – If you have surplus cash, reduce your EMI payouts by repaying loans. This need not include Home Loans as it carries various tax benefits.

4. Personal medical insurance – Since we are covered by our company under their medical insurance plan, we typically do not take cover on a personal basis. Please do so at the soonest. A cover for the family is essential.

5. Review major purchases – If you are about to purchase a house, car or take that personal vacation, please review the same. Dont give away to impulsive buying/spending. Do not allow your EMI payments to exceed 40% of your net take home salary.

6. Discount your variable payout/bonus – This component is going to fluctuate over the next few quarters. So do not consider this to be a major portion of your earnings.

7. Be prudent in usage of your credit cards – Will save you a lot of pain in the long run.

8. Cut down on miscellaneous expenses – While the typical stereotype of IT employees being high spenders does not hold true, look to cut down non-essential expenses.