With the out-break of Covid-19 the economy has taken a hard knock. With the majority of businesses closed, many people may be forced to take a pay cut. or they could be facing job loss.
When you know your paycheck is decreasing, you need to take immediate steps so that you can continue to manage your money. With any pay cut, it is important to carefully consider when and how you are going to cut back on your lifestyle.
Unlike when you’re short on cash, the financial changes you make to adjust to a lower salary will need to be sustainable over the long haul. And you’re still going to need to plan for your long-term monetary goals. Follow these tips on How to survive a Pay Cut.
Create a New Budget
Your first step is to create a new budget based on your new paycheck.
When you build your new budget, make sure that you are listing the necessities and luxuries in separate columns. It will make it easier to find the areas that you can cut back on more easily. You may need to switch a bare-bones budget at first. You will need to make sure you can make it with your current salary.
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A bare bones budget is going to cover only your necessities. Your necessities include paying your mortgage or rent (shelter). Your basic utilities (heat, power, and water) and your food. If you need the Internet to work, you may be able to include it. But if money is really tight you can take advantage of free WiFi at the library or a store. It depends on how serious your situation is and by following these Tips on How to survive a Pay Cut, could save you in the long run.
Cut back on your spending
This means that you do not buy new clothes, spend money on entertainment or other optional things. It means that you do not eat out. You should prepare your food at home since it is much less expensive than eating out. You may want to cut back on your cell phone plan. You should cancel any memberships and automatic debits that you have coming from your account to save money. You should reduce any plans that are under contract to the bare minimum required to avoid paying fees to cancel the contract.
Never Cut These Expenses
You should do everything you can to keep your health insurance (medical aid). A medical emergency in this situation can throw you into a tailspin. It is important that you put health insurance above other expenses on your list. If you still have a job, you should still contribute to retirement. If you are currently unemployed, do your best to avoid dipping into your retirement savings.
Find ways to save on necessities
You still need to budget for your necessities. Food is one of the largest household expenses in a family’s budget. Yet, the average person wastes around 40% of the food they buy.
There are many ways to reduce the amount of food you waste and save money on the food you buy each month. If you usually shop at a more expensive store, you may be surprised at how much you can save by switching stores.
Another option is to scale back on your other monthly plans. Things like cable, Internet, and cell phone. Although the savings may not be huge, the combination may be enough to help you save money. Cut out all the bills that you do not need.
Don’t Miss Your Payments
Whatever you do, don’t fall behind on your credit card bills. It’s okay to pay just the minimum as you adjust to your lower salary, but don’t be late—you’ll take a hit to your credit score.
If it’s absolutely necessary, you can consider applying for deferment to both stop payments and interest from accruing for a period of time.
One of the biggest mistakes that people make, they stop saving. But even if it’s just a little bit, continue to set aside money in your savings account. If you don’t have an emergency fund, you will want to start one. By keeping an emergency fund, you will limit your likelihood of taking out another line of credit (with interest to pay back). It will also 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.
Be sure that you are not running up debt during this time. It takes discipline to handle a pay cut because you are used to certain lifestyle.
When you are in an extreme situation, it is important to take extreme measures to protect yourself. Use these Tips on How to survive a Pay Cut.