LoanRaja Blog- Personal Finance Guide

From the days of having 2-3 jobs on hand, ITES employees are facing the challenge of chasing non-existent jobs. Get wise with your life management in tough times

A couple of generations back, the biggest worry of your career was landing a job. And then, one was more or less assured of security for the next thirty-five years or so until retirement. Today, your stability depends not just on you, but your company’s financial health and practices, the state of the economy as a whole, and the state of finance of the company’s customers and the economy of their home countries. To drive home the point is the latest Nortel development.
An announcement made half way across the world can shake up our markets, and for some, shake up careers and personal lives too. The dust has hardly started to settle down on the Satyam storm, and we already have something new to think about – the Nortel bankruptcy filing. Nortel has filed for bankruptcy, chapter 11 — meaning that it has asked for credit protection from the US Government to settle dues while it restructures itself, a little like our BIFR (Bureau for Industrial and Financial Reconstruction).
Indian IT stocks promptly fell between 2-5 percent in reaction to this news, mainly because Nortel has been one of the large outsourcers of IT to India. In fact, it was also one of the first companies to start outsourcing to India and practically every outsourcer is a vendor to Nortel.
Other than Sasken, which depended on Nortel for ten percent of its revenues, companies have said that their exposure was too little to make any significant financial impact. But that is in percentage terms. In absolute terms, 0.5 percent of $ 2 billion (Infy revenues) is around $ 20 million, while Wipro’s annual revenues from Nortel is around $ 25 million. Even if Nortel pays off all its outstanding dues, future business is likely to be much lower. Sasken had around 300 people on Nortel projects and if one assumes that the others too had anywhere between 250-400 people, then it is that many jobs lost for the Indian IT industry.
There is nervousness across companies about more nasty surprises, given current economic conditions.
Suddenly, the IT industry is not as coveted as it used to be, as the downsides to the industry are being unfolded practically every week. Youngsters have been reported to be declaring that it was far better to join the good old stable government sector, rather than live with the uncertainty. A friend said that her brother-in-law in the US routinely checks his mail on Sunday evening to make sure that he had a job to go to on Monday morning!
However, the uncertainty is not going to go away and we simply we have to learn to live with. A few golden rules to keep in mind:
Do not give in to panic: Assess your situation. If you see your company floundering or fear for your job, start looking around before you are forced to. Remember also that some things are completely unexpected, like the Satyam fiasco. These are beyond your control and not worth worrying about.
Prioritize your financial needs: In happier days, you might have bought a car, refurnished your home and upgraded your television set all at once. Focus on the most important need and work downwards.
Gather as much information as you can about all available options: There are enough websites, newspaper articles, and consultants offering financial advice. Look at various options and choose the one that suits you best.
Spend wisely: As long as you spend only that which you know you can afford, you are safe.
Invest for the future: This period of economic slowdown is only temporary. Invest wisely for the future, whether it is in a house, a car, education, or stocks and mutual funds.

Satyam fiasco might have thrown fresh challenges for different segments of society. You can use them as tips to manage your uncertainty.

The current Satyam fiasco has a lesson for every individual. If you are an investor, now you know that you don’t have to go by the EPS and PE rations because they can turn meaningless; if you are an employee, the lessons you learn are a bit more challenging. You can’t take it for granted that you would be receiving salary every month, can’t expect your credit card limit to be unchanged because every card issuer can lower it overnight!

While it is still not officially out as to whether Satyam employees would be paid salary for the current month or not, it is a situation familiar for many employees in the last few months. chances are that many could land up in similar situation in the coming months if the current environment were to continue. Hence, if you are one of those who still have a cushy job with uninterrupted income flow, take time to plan for that emergency.

Here are some areas you need to focus on in the coming days:

Cash for sustenance: gone are the days where you could live with a zero balance in your account and wait for the salary to refurbish your bank account. In the days of pink slips, your bank account needs to look rosy and hence, keep cash to sustain yourself for at least a month. This in itself is not enough. You need to have liquidity which can sustain you for a minimum of six months or your investments should be accessible in the days of emergency. The options for liquidity could be from a number of investment products such as bank deposits, liquid funds or company deposits. Keeping money in savings account may look an easy option but other products let you earn a bit more income. For instance, a balance of Rs 1 lakh in an FD can get an interest income of around Rs 3,500 for six months whereas in an SB account, you may not even realise the additional income!

Keep your credit calls low: This is no time for splurging on shopping through borrowed funds and if you are one of those habitual card spenders with large outstanding on credit card, go slow on the same. A credit card loan is still expensive and paying an interest of 40-50% is an avoidable expenditure in the current environment. Hence, if you are in the habit of rolling over your credit card bills, make it your New Year resolution to discontinue the habit.

Take a medical insurance policy: Employers aren’t any more in generosity mood and instead, are looking for fresh avenues to cut costs. In the coming financial year, many perquisites and facilities are likely to get an axe and some employers have already indicated about discontinuing the medical facility. So, even if your employer provides medical cover, sign up for an insurance policy for your dependents as it can take care of any medical emergency. Since the premium paid on policy also provides tax benefit, the real cost of this insurance is much lower. More importantly, the policy can come in handy when you are in between jobs.

Also read: Satyam fiasco

Breaking news- Satyam chairman Ramalinga Raju resigns! Since the Satyam drama started to unfold; imagine the plight of Satyam employees who woke up one morning to realize that they may no longer have a job, may not get the next month’s salary, may not be able to pay off the loan on that apartment they have just bought, have no more access to credit on their cards, not to speak of losing assets in the form of shares and stock options that crashed practically overnight.

The other thing about the Satyam fiasco is that no one seemed to have seen it coming – not the employees, not the senior management (at least no one has said anything) and by the looks of it, neither the auditors.

It is of course possible that the new board can salvage the situation to a large extent, but the lesson to be learnt from this is the increasing uncertainty around us.

It is not just like news on general economic conditions and terror attacks, people can no longer be sure of the companies that they work for. How does one ensure or insure job security?

There is no answer to that one. The risk of something depends upon what stage an employee happens to be in his or her career. Going by news reports, there are thousands of Satyam CVs in the market today. They may continue to keep floating for a while because right now, none of the IT companies are hiring. Senior people at Satyam are at a disadvantage because one, they are likely to have held more Satyam shares and made more losses on them; and because there will always be a doubt about their involvement in the scam, but experience should help them land them something somewhere. The fresher’s at Satyam Services would be free of financial and personal commitments and can afford to wait for the right opportunity to come along. It is the middle management that will be the hardest hit, burdened by loans, and family commitments. Even when companies are downsizing, middle managers are at a risk of being fired first because they cost the company more than fresher’s.

The chain effect- A few years ago, a colleague told me a story to illustrate life in the US. Here’s a man who meets with an accident, is held up and can’t attend an important meeting because of which he loses his job. When the credit card company finds out that he has lost his job, they stop all credit to his account. His bank repossesses his home, his car and other possessions that he had bought on loan. One look at utter ruin, his wife decides to walk out on him and by the time he reaches home, his world has fallen apart.

In the US, the concept of insurance against job losses crops up every time there is a recession, though the product itself has not received very good reviews. Some of these are linked to mortgages and home loans, where loans can continue to be serviced even if the borrower loses his job. Then there is the unemployment dole.

In India, employees have to safeguard themselves against this possibility through private funds. In non-financial terms, personal integrity and goodwill can see people a long way through. Professional reputation is worth investing in and personal reputation even in business contexts is highly valued.

Also Read Impact of Satyam services