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.
1. Update Your Budget
First and foremost, create a budget if you don’t already have one. 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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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 two or three months, you’ll see a pattern emerge that indicates where most of your money goes.
3. Cut Expenses
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 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.
In addition, opening a new savings account could help you maximize your money. With SoFi Checking and Savings you’ll earn a competitive APY and pay no account fees.
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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
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