A pay cut, whether big or small, can catch you off guard—and throw your finances into disarray. While a salary cut is different from a layoff, it can leave you feeling just as uncertain.
In times of recession or industry downturns, it’s relatively common for companies to implement pay cuts as a strategy to keep the business alive. In these cases, it may be best to hang on and understand that it’s a temporary stress everyone at your company is experiencing.
In other cases, your company may be redirecting cash flow, assessing salary rates, or at its worst, trying to get you to quit. If the pay cut isn’t fairly implemented, it may be time to reconsider your position. If the pay cut seems discriminatory or punitive, targeting specific people or following a complaint of harassment, then the pay cut may be illegal and you might want to look into your local laws.
It’s hard news to hear, especially since you can’t control how much your company pays you. However, you can control how you manage your lifestyle through financial hardships.
You can follow these steps to help you get a handle on your career and financial situation:
- Find Answers to Your Questions:
You likely have several questions following your pay cut, and you have every right to ask your employer about their plans for your salary. Understand as much as you can about your pay cut so you can better prepare for your future.
- Adjust Your Budget:
Adjusting your budget is going to be the first step in securing your financial foothold. With a new salary, you should calculate exactly how much money will be deposited after taxes and other reductions. This way you can accurately calculate your payments, savings, and spending money each month, and even prepare automated transfers.
Once you know how much you have, you may need to decide where you’re cutting your spending.
- Continue Saving:
One of the biggest mistakes that people make when they’re cutting back is that they stop saving. However, even if it’s just a little bit, continue to set aside money in your savings account. By keeping an emergency fund, you will limit your likelihood of taking out another line of credit (with interest to pay back) and prevent any uncomfortable borrowing from your friends or family. It’ll also keep you in the habit of saving for the future, and protect you from the possibility of an even rainier day.
- Plan Your Next Move:
Now that you’ve done what you can to secure your current situation, it’s time to look forward to your next move. Ideally, you have an expectation of how long your current salary rate will last at your company — if it’s indefinite, it’s probably time to move on and look for something new. If your company has outlined strategies to improve and provided a reasonable timeline, then you may choose to stay and lend a hand.
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