The economy is in a volatile place as of early 2025. Because of economic uncertainty, some companies have resorted to pay cuts to help cut costs. For the workers affected, it likely means scouring their budgets to trim some of their expenses. Taking a pay cut means facing the reality of no longer living the same financial life.
If you’ve just taken a pay cut — or you’re worried that you might soon be facing one — here are four strategies to handle your finances after your salary is reduced.
Key Points
• If you experience a pay cut, create a budget to allocate income to needs, wants, and savings.
• Track spending to identify financial patterns and impacts.
• Cut expenses by reducing entertainment and other non-essential costs first.
• Save money through deferring payments, using rewards, and shopping for deals.
• Continue saving for retirement to maintain good financial habits.
1. Update Your Budget
First and foremost, create a budget if you don’t already have one. There are many options, including the popular 50/30/20 budget rule, which allocates 50% of your take-home pay to needs, 30% to wants, and 20% to savings or additional debt payments.
Whichever of the different types of budgets you choose, you’ll likely need to list all your expenses for weekly purchases, from groceries to gasoline and parking fees. Add monthly bills, including rent or mortgage, car loan, streaming services or cable, cellphone, utility bills, credit cards, student loans, and any other debt such as personal loans.
Next, examine all your expenses to see which ones you can lower or eliminate for the next six months. Add your income and include part-time jobs or side hustles, tax refunds, bonuses, and any child support or alimony. This will help you determine how much money you can spend for necessities, expenses, entertainment, and other things such as doctor visits.
In addition to a budget, create a plan for both short-term financial goals and long-term goals. A plan will help you determine when you can pay off any loans and how much you want to save for something like a down payment on a house.
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Recommended: 50/30/20 Budget Calculator
2. Track Your Spending
You could use a free money tracking app that can help you keep tabs on your spending and help manage your debt. To track your spending, decide if you want to track it daily, weekly, or biweekly. You might try different time periods before you decide on one.
After you track your spending for a couple of months, you’ll see a pattern emerge that indicates where most of your money goes. You’ll also be able to gauge the impact a pay cut has had on your finances. Are you overall in good shape but no longer able to apply additional payments to a loan’s principal? Or are you now living paycheck to paycheck? The answer can help guide your next steps.
3. Cut Expenses
The next step should help keep more money available in your bank account for necessities: trimming how much money goes to the “wants” in life. One place many consumers can cut costs is from entertainment, such as their streaming services. These can really add up. Canceling all or some of these services can improve your cash flow, which is how much money you have left over at the end of the month.
Another place where you can slash expenses is from your food budget. Consider using digital coupons, shopping at warehouse clubs, or going out to eat for lunch instead of dinner to save money on food.
Your expenses include debt such as credit cards, student loans, and personal loans. Paying more than the minimum balance, refinancing to a lower interest rate. and making extra payments can help you pay down the loan sooner.
Consider refinancing your student loans by checking out both fixed and variable rates. Interest rates are at historic lows. You might be able to pay down your credit card bills faster by taking out a personal loan; those interest rates are often lower. And if that’s the case, the debt could be paid sooner.
Automating your finances can make your life easier. This will also help you avoid paying late fees. You can either have your bills paid automatically through your checking account or set yourself a reminder on your calendar if you have some bills such as utilities that are a different amount each month.
You can also automate your savings. You can have money taken out of your checking or savings account each month and have it automatically invested into your workplace 401(k) plan or an individual retirement account (IRA).
In addition, you could consider opening an online bank account with a high-yield APY. That way, your savings could earn money for you as it’s sitting in your account.
Ways to Save
When your salary has been slashed, there are several ways you can save money immediately and long term.
• Call your mortgage, auto loan, utilities, credit card, and student loan companies to see if you can defer loan payments for several months. Skipping a few payments can help you get back on your feet sooner. If the company cannot provide this option, see if the interest rate can be lowered on, say, credit cards.
• Check with your local nonprofit organizations. Many provide food or partial payments for utility bills. Look online to see if stores are offering deals. Stock up on staples such as beans, rice, and pasta if they are on sale.
• If you are still short of money, you might consider talking to family members and friends about obtaining a short-term loan.
• Now might be the time to use credit card rewards for cash, food, or gift cards. People who have been saving credit card rewards for a vacation might want to go ahead and use them now. Some credit card companies will let you transfer the rewards for cash to your statement or use them for food delivery.
• Other companies let you use your rewards to receive gift cards. Using these gift cards at retailers that sell staples and necessities such as food, detergent, and other personal items can help you spend less money.
• Many credit cards will give cash back on purchases such as food and gasoline. See which credit cards are the most beneficial for your financial needs before signing up for a brand-new credit card.
• Another way to save money is to use cash for gasoline. Some gas stations offer a cheaper price for consumers who use cash. The savings can add up quickly, especially if you have a longer commute.
• Finally, each month, look for other ways you can save money. If your credit card company denied your request last month to lower your interest rate, try calling again. Rules can change often.
4. Save for Retirement
While you could skip saving for retirement, it’s ideal to continue socking away some money (even if it’s less than previously) each month from your paycheck into a 401(k) plan or IRA. The money you stash away for retirement can lower your taxable income, meaning you’ll owe the IRS less.
Continuing to save money for retirement is a good habit, especially if your salary reduction is temporary. Once you stop contributing to a retirement account, it can be difficult to catch up on your retirement savings. If you have your retirement contribution automatically deducted from your checking or savings account, saving for your future is easier.
The Takeaway
While it can be difficult to navigate a pay cut, creating a budget, tracking your spending, shopping for deals, and cutting expenses can help you save and get through a tough time. These moves can help you stay afloat during a challenging financial period. In addition, opening a new bank account with low or no fees and favorable interest rates could help you maximize your money.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How to survive taking a pay cut?
If you’ve experienced a pay cut, smart moves to survive include creating or updating a budget, tracking your spending, shopping for deals, and reducing expenses.
How to budget after a pay cut?
After a pay cut, take a fresh look at your budget. Review and trim expenses, prioritize debt payments, and consider using credit card rewards to fund essentials. It can be wise to funnel a small amount of money into an emergency fund to provide a cushion.
Is it ever wise to take a pay cut?
Yes, it could be wise to take a pay cut for an opportunity to work in an industry or company you have set your sights on. Or, if you are working at a job and pay cuts happen, accepting that situation could allow you to maintain cash flow and benefits while you wait to see if your pay goes back up or you find another job.
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