Pay Cut? Do These 3 Things
By Melissa Tosetti
You earned your medical degree, passed the bar or worked your way up in your professional career. You never imagined having to take a pay cut.
Nevertheless, professionals across the U.S. have experienced just that as their companies work to survive the fiscal effects of COVID 19.
There are three things you can do to more easily weather your reduced income and actually turn it into a positive experience you’ll benefit from for a lifetime.
1. Pause, don’t panic.
It may sound contradictory, but the one thing you don’t want to do is overtighten your belt.
It’s a common reaction when 15 – 20% of your income goes away to put a halt on all discretionary spending, but that’s a mistake.
Instead of immediately focusing on eliminating pleasure spending, take this time to review your expenses and spending overall. When was the last time you did that?
One of the contributors to overspending is our busy lives. We’re moving so fast that a common byproduct is a bleed of 10 - 15% of income. It’s the subscriptions you’re no longer using. It’s the takeout when you don’t feel like cooking. It’s the car insurance or phone bills that could be reduced.
Individually the savings can seem not worth the effort. Collectively, it adds up! In our recent experiences with clients that’s exactly what happened. By analyzing their overall spending and expenses they identified what they aren’t using or enjoying and made up most their pay loss.
It’s important to note that eliminating all pleasures quickly leads to “frugal fatigue.” This easily boomerangs into overspending. In most cases severe tightening is not necessary. It’s just reactionary.
2. Reframe
This isn’t lipstick on a pig thinking – this truly is a moment in history to review your spending and expenses from the perspective of designing the life you want to live.
We’re humans. We’re busy humans. Without some sort of trigger, unfortunately in this case a negative one, we won’t take the time to evaluate our financial situation and redirect our spending. Are your spending decisions putting you on the road to the life you want to live – now and in the future?
Now is the time to define, then design the life you want to live. Give yourself the opportunity to evaluate, decide and repurpose.
3. Carry On
Once you do get back to your regular income, take your new positive money habits with you. Decide in advance what you want to spend more on or bring back when your financial situation normalizes.
This is also an excellent time to prevent Goldfish Syndrome giving you the opportunity to build wealth and enjoy yourself along the way.
It’s easy to save money when you have to. The challenge is to be purposeful when you don’t have to. The reward for that challenge is an increase in quality of life as well as wealth.
You can get emotionally derailed or look at it as an opportunity. You’re going to experience the pay cut regardless.
Melissa Tosetti is a cash flow planning expert, founder of The Savvy Life and author of the international bestseller Living The Savvy Life.
For the past eight years, she’s worked with over 625 individuals and families to create Spending Plans.
To learn about the Spending Plan process, visit The Savvy Life’s Home Page. If you’d like to learn about how The Savvy Life works with financial advisors and their clients visit: The Savvy Life Advisor’s Page.
