What To Do When Your Pay Gets Slashed

By BankBazaar | May 30, 2017

What To Do When Your Pay Gets Slashed

In a difficult job market, it’s common to see layoffs and pay cuts. For the affected employee, it’s never an easy situation to face. However, here are some steps to take to help you balance your finances in case of a pay cut.

Take Stock Of Budgetary Impacts

When your pay is slashed, take note of how it’s going to impact your immediate and long-term financial commitments. This step can be easier to implement if you already have a monthly budget. If you don’t have a budget, you should create one now. This is a good time to distinguish priority expenses from avoidable expenditure.

Lower Your Expenses

You must find avenues to reduce expenditure wherever you can. Ideally, start with items that make the biggest impact on your budget. For example, rent could be your biggest expense. If your reduced pay no longer affords you your current accommodation, you must consider moving into a house with a more affordable rent.

Lifestyle expenditure like eating out, clothes, entertainment and travel could form another significant chunk of your expenses. Utility tariffs should be lowered and subscriptions cancelled wherever possible. Going through your bank and Credit Card statements should help you identify areas where expenses can be reined in.

Readjust Investment Goals

Let’s say your savings and investment target was 20% to 30% of your take-home income. You must continue to meet this target to the best of your ability, even with your reduced pay. For this, you may have to introduce a degree of frugality into your life. Financially speaking, this is a good habit to develop and will help you once your income starts to increase again.

Restructure Your Loan

With your reduced pay, you may have challenges paying your Home Loan or Car Loan EMIs. You may also have a legal obligation to inform your lender about the pay cut. If your problem is pressing, you may approach your lender and inform them about your situation. You may ask for changes in the terms of your loan. For example, increasing the tenure of your loan will allow you to pay lower EMIs. Once your income rises again, you may return to paying a higher EMI.

Use Your Insurance Grace Period

Do not consider dumping your insurance in case of a pay cut. If you have a Health Insurance plan, maintain it. If you have financial dependents, you should maintain your Life Insurance. However, you should switch from investment-linked Life Insurance plans to Term Plans, whose premiums are lower. You may use your insurance grace period (15 to 30 days) to delay premium payment in case you need more time to raise the money.

Watch Your Credit Use

With your reduced income, it may become tougher to pay high Credit Card interest and penalties. Credit Card debt is expensive, with annualised interest rates touching 40% in some cases. Therefore, employ your Credit Card gainfully and always repay your card balance in full before the due date.

Consider Part-Time Jobs

Lastly, a phase of uncertainty in your career reveals the need to acquire more skills and knowledge, which could make you more useful to your employer. While you can enrol for training and higher education, you can also do this by taking on freelance and part-time assignments. This solves two problems at once: you accumulate additional skills and experience and also develop an additional income stream.

(The writer is CEO, BankBazaar.com)

 

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