How to handle a pay cut?

Demanding a new opportunity might cause a reduction in your current payout. Pay cut simply means a reduction in an employee’s salary. There could be various reasons including layoffs, corporate restructuring and cost-saving initiatives by the employer.

Apart from these, there could be reason from your side like you may decide to switch companies or careers and ready to work in a lower salary because the opportunity for growth is great or you want to work with a company having less stress.

Of course, reduction in anyone’s salary is unfair, and unjust, which gives an unpleasant reaction and you have to sacrifice a few of your dreams as well and deal with a pay cut.

So, you have to take immediate action to deal with the money effectively. Here are the small six steps that will help favorably to manage your money and deal with this problem:

  1. Revise your Budget: You should consider all your money inflows and outflows again and revise your budget based on your new paycheck. You might have to consider factors like in case of shifting jobs, the cost of living might get changed. Try to make a list of necessary things and check that your current salary is enough to cover the necessities. If yes, you might look for other luxurious items or savings, depending upon your needs.
  2. Eliminate unnecessary expenses: This is the foremost advice to manage your earnings. You should not only focus on saving but also cutting down or limit your expenses. Try to eliminate expenses from clothing, entertainment (Netflix, fast food), trips, etc. Go for a local grocery store instead of spending much on restaurant meals.

Don’t worry this cut in expenses is for the short term. Once you start getting a higher salary, you can start it again or might be till then you got habitual of saving from one more option of cutting down unnecessary expenses.

  1. Look for Side hustle: In the Internet era, you can look for various freelancer or part-time jobs where you can devote 3-4 hours (depending upon the type of work) daily to earn some extra income. This will help you to compensate your salary which was offered earlier at the higher rate.
  2. Save your rent: Another good option is to save from paying higher rent. Yes, if you are living in a rented property with a high rent rate, you can look for another rented space with lower rent costs. This will help you to save this money and use it for other important necessary payments.

Alternatively, you can ask someone to share your room by paying rent. It is beneficial for both as you will able to earn and another person could eliminate their own expense.

  1. Debt Priority: Don’t forget to pay your debts in due time. It’s difficult to manage the payment of others but it could worsen the situations if you don’t pay your debt on priority. Moreover, being too late in repayment will also give an adverse impact on your Credit score.

So, what you can do is, in case you have taken any loan, you can negotiate with the lender and it will help you to offer an extended time to repay your debts.

  1. Don’t liquidate your investments: The biggest mistake people do is to liquidate their investments of Fixed Deposits, Sips, and Mutual Funds. No doubt this will help you in the short term but what about after retirement? How are you going to manage that time?

It is better to manage your current salary for the short term rather than compromising the long term goals.

Saving a penny could lead to filling a box, no matter how much small saving it is, it will eventually help you somewhere to manage your living. It is always advisable to maintain good savings not only to secure your future but also to deal with unexpected emergencies.