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Every Employee’s Nightmare: Loss of Income
Every Employee’s Nightmare: Loss of Income
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Money Management

Every Employee’s Nightmare: Loss of Income

Money254
Doris Kendi
May 20, 2022

After completing his undergraduate degree in Business Administration in March 2019, James was quickly absorbed into the workforce. He was employed by a multinational hotel franchise for an entry-level management job. He had previously interned at the hotel. James was ecstatic; his future looked bright. He was making enough to live a lavish lifestyle and support his parents in paying for his sibling's education.

Six months later, James received a 20% salary raise. He had also saved enough, so he decided to buy a car on hire purchase terms. He used his savings as a deposit for his brand new car and rode off into the sunset. James didn’t have any savings now and used over 50% of his salary to pay off his car loan.

In early 2020 all hell broke loose. As the pandemic ravaged the world, the hotel franchise James worked for downsized, eventually declared bankruptcy and closed its doors. Overnight, James was jobless, had no savings, and had no way to service his car loan. All was lost in a blink of an eye.

Every adult takes pride in their ability to provide for themselves. We wake up and go to our jobs so that we can generate money to support our lifestyles and live fulfilling lives. Loss of income refers to a situation in which we’re deprived of that ability, and we can no longer make money to cater to our expenses and pay our bills.

Also read:Money, Wastage & Me: Regrets, Lessons From 10 Years of Employment 

5 Ways Loss of Income Can Happen to You

The possibility of loss of income is a nightmare every employee has to live with. Whether we are prepared for it or not, loss of income can happen to anyone. Let us discuss five ways it can happen to you:

  1. Incapacitation due to accident or chronic illness: We’ve all heard horror stories of people we know getting involved in accidents that left them unable to work and others being diagnosed with a chronic disease and spending months on hospital beds. There’s only so long an employer will pay you while on sick leave. The most generous one will pay you for a couple of months, after which you lose your income.
  1. Retrenchment. You can wake up one day and your employer will decide that they no longer need your services. This is no surprise at all. It happens and most times, it is not your fault. 

Also read: Why You Should Diversify Your Income

  1. Termination. Unlike retrenchment where the employer might decide they no longer need your services which might not be because you are at fault, an employer can instantly terminate your employment due to your behavior, performance, or other personal factors. Either way, you still lose your income. 
  1. Bankruptcy/Company closure: If you depend on the cheques you get from your employer to pay for your expenses, those cheques will stop coming if your employer goes bankrupt. As we saw in the case of James above, he suffered a loss of income when the hotel he worked for closed its doors after it went bankrupt.
  1. Retirement: This is the inevitable end that awaits every employee. When you put down your tools of the trade and leave the workforce, reality hits when you hit this stage, and it's time to eat the fruits of your years of labor, sweet or bitter. With retirement comes the ultimate loss of employment income as you’d mostly get cut off of your primary source of income.

Also read: 7 Ideas to Diversify Your Sources of Income

3 Scenarios Loss of Income Can Find You In

The scenario in which you are in when you suffer a loss of income will define how you will mitigate its effects. We will examine the three most possible scenarios loss of income can find you in from a financial standpoint:

  1. The Stable Scenario: This is where you’d want to be when you get hit by a loss of income. In a stable scenario, you will have some savings stashed away and a secondary source of income that will help you stay afloat and meet your commitments like servicing a debt.
  1. The amiss Scenario: This is the scenario most people find themselves in. They are the employees who live paycheck to paycheck. They mostly don’t have any savings for rainy days and don’t have any loans and debts they need to pay back. If you find yourself in this scenario, you will have to replace your loss of income quickly before you fall into debt. 
  1. The Crisis Scenario: This is the scenario you don’t want to be in when you experience a loss of income. It is the scenario our protagonist, James, found himself in. In this scenario, you don’t have any savings and are deep in debt when you get hit by a loss of income. You might need to sell off your assets to service debts or be forced to declare bankruptcy. 

Also read: How to Manage Your Money in Uncertain Times

How to Protect Yourself From Loss of Income

Learning how to protect yourself from the nightmare of losing your income is a survival tactic every employee needs to know and perfect. Let's now dive into how you can protect yourself from loss of income:

Also read: What to Do When You Don’t Make Enough Money

Improve Employability: You can advance your education and skills by getting that postgraduate degree and being more motivated as employers lookout for such qualities. You can improve your soft skills like communication, critical thinking, and problem-solving ability.

Save, Save, Save: This might sound cliche, but saving is one of the best ways to protect yourself from a loss of income. Your savings will help you pay your bills while you scramble to get a new job.

Also read: 11 Ways to Save Money Without Driving Yourself Crazy

Start Investing Now: You might fear investing because of the risks associated with it, like losing your money, but nothing supersedes the fear of losing your source of income. Get a financial planner to help you identify low-risk investment strategies to get you started. Your investments can be a secondary source of income that can come in handy, especially after retirement.

Get Properly Insured: Nothing is more beneficial than insurance when it comes to protecting oneself. Insurance can play a big part in your life after you lose your source of income. Some of the insurance policies you should have are:

  • Income Protection Insurance - Provide money to replace your income when you can’t work due to illness or injury.
  • Disability Insurance - Will provide you with money when you cannot work due to a disability. It can cover both physical and mental disabilities.
  • Health Insurance - Health insurance will help you offset medical bills when you are sick and can’t generate income.
  • Life Insurance - In case of your death, your insurer will pay your dependents a lump sum to replace the incoming you were generating to provide for them.

WRAPPING UP

Loss of income can be detrimental to employees. As we have seen, it can drive you into debt and bankruptcy. And no one is immune. It would be best if you took some of the measures we have highlighted to protect yourself should you ever find yourself in such scenarios.

Doris is a finance professional, freelance writer and SEO expert. She has experience helping businesses of all sizes create content that helps improve their site quality and increase their online traffic. She is a personal finance and wealth creation enthusiast and a frequent contributor to Money254. Visit Doris' personal website to learn more about her work.

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