Anand and Lakshmi are a young couple with two children who have to make a very tough decision. They are on a temporary work visa in the US and Anand has unexpectedly lost his job in the Covid crisis. He has to find another job in six months, or they have to leave the country. Many who come to the US on a work visa hope to stay back and get a Green Card some day. But given the countrywise limits on the number of cards issued, the queue for Indian applications is long. But many do not lose hope. They renew their visa status and continue.
The personal finance situation gets complicated by a few other factors. Among them are house ownership and children’s education. In a bid to save the rental outgo, many immigrants choose to buy a house instead. Since interest rates are low and the process for buying a house is quite streamlined, many take a loan and buy a house.
Since they hope to raise the family in the US, many like Anand and Lakshmi have children that were born there. These children have US citizenship due to their birth there and study at the local public schools at a low cost.
Losing the job upsets all of this severely. Young families like Anand’s do not have much saving to fall back on. They have a modest salary, and pay a stiff tax on their income. One family trip to India or a sponsored trip of relatives from India is enough to wipe off the year’s savings. They sometimes fall into debt if they have to make multiple trips when someone in the family is ill. How would Anand rearrange his life?
First, trying to get another job is in their mind, but these are not easy times. They must give themselves a reasonable time, say three months, to find an alternative job. If that does not work out, they should prepare to relocate to India. Breaking the law and overstaying an expired visa are actions that will impact their future applications for resident status in the US. It is better to return with a valid work visa again if a job opportunity presents itself.
Second, they should view this as a temporary setback. While building a life and career around a salaried job, the ups and downs that come with movement of the job from one place to another are inevitable. It is important to take it in one’s stride and be willing to reorganise life and work as change happens. That agility will turn out to be a great strength going forward. Mentally allow a six month transition from this crisis, and work towards finding another job, wherever else in the world it may be available.
Third, they have to make the painful decision of liquidating their assets. It is better to have a plan on hand to dispose of the house, cars, household furniture and other objects. There is a market for used items and it is sensible to focus on recovery of locked money rather than paying the costs of transporting stuff. They can start over in the new place if they have money on hand. Making a systematic plan for selling will get better results than a distress sale.
Fourth, tapping into assets that are back home during times like these is important. Anand had purchased a flat when he was working in India. That flat is now on rent. His father also earmarked a smaller flat for him as a proposed bequest in his home town. These properties are large chunky assets that can fund a period of loss of income for the young family. They can always build assets back once they are back on their feet. Use them now when most needed.
Fifth, the mental stress and possible depression about losing a comfortable life and stepping into uncertainty with young children in tow, can be painful. Anand and Lakshmi need all the support they can get from friends and family. They have to ask for and draw that support, rather than withdrawing into a shell. A few confidants in the family and friend circles should know their true position, be able to stand by and help, and offer support as sounding boards and wise voices of counsel. They can save themselves from making desperate decisions when they find support and wise counsel.
Sixth, beginning again can be tough in these times. If Anand decides to return to India and turn entrepreneur, as has been the thought in his mind, he must consider the prolonged period of risky incomes a venture can bring. If Lakshmi is able to go to work, that will support the family’s finances. Drawing from the local support system offered by parents and friends, they must focus on the basics first—a place to live, good schooling for the children, and adequate cash flow to keep the family’s essential expenses covered. Don’t worry about anything else until your feet is firmly planted in the new environment.
Seventh, the focus in money management in an uncertain environment should be to preserve and to draw sensibly. The four pillars of personal finance —income, expense, investing and assets —must be redefined given the current situation. Income cannot be left to be in risk for too long. A job loss is loss of income. It must be replenished soon. Expenses must be limited to the minimum. Absolutely no borrowing or debt. Investing takes a backseat. Surpluses may be tough to generate. Assets will be drawn upon and used to substitute income until matters stabilise.
Eighth, a sense of priority must drive decisions. If assets such as jewellery or bonds must be sold, it should be done without much ado, and the confidence that eventually it will all be built back. If a simpler home or a less glamorous job has to be chosen, it should be done to anchor the income in place. Do not allow societal pressures to dictate how these decisions are made. Worse, do not succumb to abstract notions of honour that stop sensible financial decisions from being made.
Given the precarious state of their finances and the uncertainty around their future, Lakshmi and Anand must make their decisions with the understanding that this too shall pass. It is tough when it happens, but such challenges are what makes us the humans we eventually become.
(The author is Chairperson, Centre for Investment Education and Learning)