- Personal Finance
11 Ways to Survive a Salary Cut
Cut Down on Credit Card Use
The Entire Family Should Reduce Spending
How to Stop Living from Paycheck to Paycheck
There is no guaranteed employment or business income in an economic recession. Businesses can no longer anticipate there will be a profit at the end of each year. Employees can no longer feel secure about having a job. According to the 2008 Department of Labor, the average amount of time an individual stays at the same job is about 4 years. There is little said about mandatory unpaid days off, or unpaid bonus checks. Financial survival is the task of managing your money in a way that will help keep you solvent in the event of a company lay-off, strike, or downsized staffing.
In 2011 the voice cast of the animated comedy TV program The Simpsons negotiated for months over a salary dispute. The producers wanted to cut their one million dollar annual salaries by 45% to save studio costs. The alternative was to cancel the program. In the end, the cast needed the work, and the producers won the dispute. The cast did not get a 45% salary cut. But, based upon the undisclosed cut, the 23-year program was renewed for another two years.
In 2010, an employee making $60,000 per year saw salary cuts from 3 to 7 percent (Dept. of Labor). How did those employees deal with a $4,200 annual pay cut of seven percent?
Clearly, it would require substantial changes in spending habits. The lesson to be learned from The Simpsons cast is that no matter how much money you make, any kind of pay cut will hurt. You need to anticipate that at some point in time, the money train will stop.
We’re not talking about a person who chooses to take a pay cut or unpaid leaves to pursue other career aspirations. The discussion is about a salary cut one day, no cost of living payment, perhaps a union strike, or a lay-off tomorrow or a few months after. Employees need to learn some financial safeguards to stay in the money in the event of a job loss.
You may think these suggestions aren’t pertinent to you and your situation. Still, no one is immune to losing a job or a business. The effects of losing gainful employment could cause eviction, foreclosure, divorce, college aspirations, bankruptcy, loss of good health, and other quality of life losses.
Recommendations to Survive a Salary Cut: It would be far better to live modesty before your income is cut down or disappears. You will have to be willing to make sacrifices in lifestyle and spending habits by adjusting how you spend your money. Still, if you live like there is an economic recession, you will suffer less than those unprepared or unwilling to cut down their costs.
1. Cut or Decrease Household Expenses. If you never get around to seeing all of the cable programs that you pay for monthly, cut down some of the services. Set a goal, saying you will cut your cable bill by 25%, maybe from the premium channels.
Review your plan and lower your cell phone applications. Remove the ones you do not use, or the ones that are for entertainment only, like a special ring tone. Limit the number of extras on your cell phone and those of the other family members.
Movies have sneak previews, matinees and special days where the cost is substantially less than evening prices. Watching a movie in 2-D is less than 3-D for a family of four. If there is a drive-in movie near where you live, you can take a carload of people for one price. And, you can bring your own popcorn and soda.
Read your monthly bills for finance charges, late fees, transportation fees and the like. Challenge any fee or charge to which you do not acknowledge.
2. Get Rid of Your Gas Guzzler. Do you really need a vehicle that costs over $100 to fill up the tank and gives low mileage? Do you need cruise control, a sunroof, and all the bells and whistles? Trade it in for a more cost effective mode of transportation. Change the model at the end of the lease.
3. Retire One or Two Credit Cards. Pay off the bill, and then cut up the card. Or, cut up the card and pay it off while waiting until they send you a new one when the card expires. Either way, until the new card shows up, you will not be able to add debt you may not be able to afford later.
4. Live Within a Specific Salary Level. You live reasonably well on your current salary of $45,000 per year. You later receive a promotion with a new salary of $52,000 per year. The mistake many people make is to start living at the increase in pay. Why? You need to ignore the extra $7,000 and bank it.
One day the owner of the company suddenly takes ill. He turns the company over to his children, who immediately start to implement salary cuts to stay afloat. You are offered a downsized position and an annual salary cut to $42,000. If you want to stay employed there, this is the salary you must accept. If you lived as if you still had a $45,000 salary, you would feel a loss of $3,000 per year. The $7.000 you saved in the bank will carry you if the company decides to implement more cost cuts, or even lay-offs.
5. Put Unemployment and Emergency Funds into a Savings Account. One day you could be unemployed for several months. The unemployment check will never cover your household expenses, even if you decrease your lifestyle expenses. What you need to do is find out what your unemployment income would be, and then save the difference in an independent, interest bearing savings account.
Put the same amount of money in the bank per pay period. Don’t touch it unless all sources of income are drained. You should have enough money in this account to cover your regular monthly expenses for six months. Keep saving after you have reached this threshold. You never know how long you will be unemployed.
6. Put Work Reimbursements into Savings Account. Your job requires that you spend your own money up front when conducting company business. Then, after completing and submitting your expense report, you get reimbursed once a month. If you are able to do without this money, and can afford to do so, put it in the savings bank when reimbursed.
7. Get a Part-Time Job. A part-time job can offset the effects of a possible salary cut. Every dime of the part-time job should be put in your unemployment/emergency savings account in case you are laid off. You don’t have to work at a fast food restaurant. Look in the classifieds and see where your skills can be used for weekend work. Some ideas are bank teller, freelance writer, home inspector, theatre usher, or dog walker.
8. Start an At-Home Business. Do something you would enjoy.Do you have hundreds of CDs and books that you will never read or hear again? Sell them on eBay or Amazon. Once you set up your business account, when you sell an item, they will immediately put the money in your bank account. There are weekend flea markets where you can set up a table and sell your goods instead of doing a yard sale. If you have a skill such as embroidery, knitting painting or sewing, your work can also be sold.
9. Cut Grocery and Restaurant Expenses. Cook at home more often. Reserve restaurant visits for the family once a week. A family of four, eating out once a week at $15 per person plus tips could spend almost $300 a month. Brown bag your lunch at work twice a week. Buy what’s on sale at the grocery store instead of the brand name. Have one glass of wine instead of two at the restaurant.
10. Collect Your Rental Income. If you own rental income property, run it like a business. Don’t allow tenants to get behind in their rent. Keep them in the habit of paying each and every month on time. Late rent can lead to legal fees, foreclosure and/or bankruptcy from trying to pay the mortgage without rent money.
11. Make the Entire Family Adhere to the Cost Cutting Measures. This plan doesn’t work if you are the only one doing it. Everyone should contribute. Meet with the family and explain how you are going to prepare for unemployment. Not to frighten them, but explain that living a top-shelf life is no longer feasible in the current economy. Ask each member where he or she can volunteer to cut costs. If they are reluctant to change their lifestyle, you must make decisions on their behalf.
This list is by no means final. You know best what items you can cut from your household expenses to save for an emergency. Surviving a pay cut or job loss means looking ahead to what may be a bleak financial situation. You need to change your expectations of your future income. You need to be prudent and visualize and anticipate a day when your salary may be cut. Set financial goals to ensure that you will be able to survive extensive time out of work.
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