Due to the coronavirus pandemic, over 33 million Americans have lost their jobs. But that’s only the tip of the iceberg. Some companies – in a valiant attempt to keep their employees on staff – issued massive pay cuts to make ends meet. Even medical professionals aren’t immune, with 21 percent of doctors either seeing their wages slashed or being furloughed. Figuring out how to handle a pay cut is daunting. But there are some steps that can help. If you’ve got to deal with an income reduction, here are ten ways to make the situation easier to manage.
1. Create a Financial Emergency Budget
Many households have expenses they can slash in an emergency. Avoiding food from restaurants, eliminating cable, cutting back on streaming services, and similar moves can all make a difference.
If you need to be more aggressive, you can go even more bare-bones. For example, find opportunities to shrink your grocery bill by eliminating convenience foods, focusing on sale items, and embracing coupons. You could also ditch any purchased drinks and choose to drink tap water from home instead.
Your goal should be to focus on necessities first. Prioritize critical budget items like housing, utilities, essential food, and basic transportation. That way, you can make sure your money can sustain everything critical above all else. After that, account for any debt payments and recurring expenses (like insurance) that you need to cover.
If your new paycheck won’t handle your debts, then reach out to your lenders. Explain your pay cut and ask if they have any assistance programs. They may be able to lower your bill, at least for a while, or place you in a forbearance program, either of which can buy you some time and preserve your credit.
2. Tap Your Emergency Fund
If you’ve revamped your budget and spoken with your lenders, and are still coming up short, then tapping your emergency fund could be an option. It would give you a source of cash to cover any shortfalls, which is genuinely that savings account’s purpose.
However, it’s wise to only use this approach while seeking out an alternative. Unless your emergency fund is especially large, it may not last long. As a result, it’s best to use this as an interim solution, ensuring you have time to find a way to increase your income or have your original salary rate restored.
3. Sell Your Extra Stuff
While the coronavirus is essentially eliminating garage sale season this spring, that doesn’t mean you can’t sell some extra stuff to bring in more cash. Apps like Letgo are still running. Similarly, there’s always Craigslist and Facebook selling groups.
If you have an item that still has value, consider listing it. If the price is reasonable, you might be able to snag a buyer.
4. Launch a Side Hustle
Many side hustles require very little starting equipment and can be done from home. If you have the right skills, you can pick up some extra projects, allowing you to make up for some of your lost income.
Writing, web development, graphic design, and a slew of other skill areas all translate well to a purely online arrangement. Consider which of your skills could work in the digital landscape and then try platforms like Upwork and Fiverr to find people looking for what you have to offer.
5. Pause Your Investments
If you need to free up some cash, consider putting the pause on investing. Unless your brokerage requires a minimum monthly deposit to maintain your account type, there’s no reason not to step away for a moment. Usually, pay cuts aren’t permanent situations. Once your circumstances improve, you can always start up again.
6. Adjust Your Long-Term Goals
Sometimes, making ends meet after a pay cut isn’t an issue. However, that doesn’t mean you don’t have to reconsider how you save if you want to remain in good shape.
If maintaining your current savings rate is challenging, reassess your long-term goals. For example, you may need to take a break from saving for a house or another objective that typically takes time. Alternatively, lowering your monthly deposit could be enough, particularly if you just need a little breathing room.
Ideally, you don’t want to walk away from saving for retirement. If your contributions are tied to your paycheck, then that likely isn’t an issue. But if you were using an IRA, you may be tempted to take a break. While this can be a reasonable move if you’re in dire straits, if it isn’t a necessity, it’s usually best to make this form of long-term savings a priority over others.
7. Get a Roommate
Sometimes, finding ways to split household costs is the easiest way to get some space in your budget. If you know someone who is in a similar situation, it might be wise to join forces as roommates. That way, you have another person who is assisting with critical costs. Plus, you’ll both likely experience some financial benefits from the arrangement.
8. Sign Up for Partial Unemployment
If your hours were reduced significantly, you might be eligible for partial unemployment benefits. If you qualify, you can get an unemployment check to help cover some of your lost wages. Usually, it won’t make up for the entire shortfall, but it can make a difference.
It’s important to understand that partial unemployment eligibility requirements vary from one state to the next. You’ll need to review the details of your local program to see if you may be able to access those benefits.
9. Get a Part-Time Job
If your pay cut came with a reduction in hours, it might be wise to explore part-time opportunities that can help cover the difference. For example, even during the coronavirus pandemic, stores like Walmart and Safeway are hiring. While the wages may be lower than what you were previously making per hour, it could help during trying times.
10. Find a New Job
At times, pay cuts aren’t short-term. If it looks like your income from your employer won’t improve any time soon, then it may be wise to explore other options.
Depending on your skill set, this could be relatively simple. If what you have to offer is in-demand, you could snag a new position fairly quickly. Then, once you have a firm offer and start date in hand, give your notice to your current employer and head toward greener pastures.
Do you have any other tips that can help people handle a pay cut? Share your thoughts in the comments below.
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