taking a pay cut: when it’s worth it and how to adjust

No one likes to talk about it, but pay cuts happen. Like many parts of working life, the reasons for a drop in your salary are rarely black or white, good or bad. Usually, when we talk about negotiating your salary, conversations treat salary as if it were on a straight upward trajectory and will grow steadily and without fail for the duration of your career. But that’s not always the case. So when is taking a salary cut worthwhile?

pay cuts salary compensation

Are there times when you shouldn’t immediately hop into job search mode? We think so. We offer these examples of when the salary cut option is the lesser of two evils:

the positive scenario.

You’ve been unhappy at your job for a while when out of the blue, your dream job introduces itself. You hesitate to accept on the spot because it pays less then you’re currently making and you’re already stretched thin with your current budget. You like the way you live now and have trouble imagining cutting back. 

the less-than-great scenario.

You’re sailing merrily along at work when the sky falls: your organization hasn’t come close to realizing its quarterly expectations. Widespread cuts are coming. Some jobs will be eliminated entirely; others are being scaled back. The organization will have to become lean and mean if the business is to survive. You’ve been dealt the ‘lucky’ option: staying on, but accepting a pay cut.

the good the bad and the ugly of pay cuts

Sometimes a lower salary isn’t a death knell for your career, but just the opposite. Let’s say you’re ready for a career change. Perhaps you want to gain new skills and experience in a brand new industry you have no experience in. Maybe you’re moving into a role with opportunity for growth or switching to a career in a not-for-profit sector that typically pays less.  It’s unlikely you’ll start at the same salary level you’ve just left, especially if it’s a new, unfamiliar role. That’s tough when your mortgage payments don’t budge. But there are things you can do to mitigate the effects of a lower salary while you gain the experience and skills to move up in a new organization or industry. 

It comes down to asking yourself what you’re willing to do to make the change happen. Maybe you’re switching careers so you can spend more time with your family or go back to school. Perhaps what you lose in salary you’ll gain in benefits and employee services. If the daily commute is shortening your life, you might find the opportunity to work from home very appealing. In other words, there are benefits of equal or sometimes greater value than money.

On the other side of the spectrum, when your employer gives you few other options… ask yourself how much you’re willing to sacrifice for this role. What reasons do you have to stay? Are you still paid higher than the market rate? Can you negotiate other benefits in place of money? Is your industry in general in a tough spot, and will you receive similar lowball salary offers from other companies? Maybe you can negotiate a bonus tied to performance. Perhaps your employer will is willing to review your salary in a few months once there’s light at the end of the tunnel. Assuming you want to stay with the company and ride out the storm, what can you do get through a drop in salary?

is your pay in line with the market rates? download our salary guide to find out.

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The adjustments to a lower salary that have to take place are the same whether you’re choosing to change up your job or it’s been foisted on you. Here are a few tips to help you survive a pay cut. 

create a new budget

Any good financial planner will tell you that creating a budget is essential to ensure you’re living within your means. Be brutally honest when you categorize your necessities and nice-to-haves. Be prepared to jettison anything that isn’t absolutely essential. You’re redefining ‘essential’ through this process; some items can be reintroduced as your circumstances improve while others may prove to be permanently non-essential. 

curb discretionary spending

When we go through a tough time, like a drop in salary, it’s human nature to turn to a little retail therapy to cheer ourselves up. Avoid that impulse, and focus on meeting your needs first. Only after you’ve covered the necessities are you allowed to treat yourself to a little feel-good shopping! Lock your credit and debit cards away and rely on cash where possible. Figure out what you need to live on for a week and put that cash in a jar. Once it’s gone, it’s gone. Your new mantra? You can’t spend what you don’t have. 

consider your living arrangement

What is negotiable? Can you live in a cheaper building with fewer amenities? Is renting or owning more budget-friendly? Do you live in a major urban centre, or in the suburbs where rents are typically cheaper? Are you willing to move to a less expensive neighbourhood? What are your travel arrangements and commute? Do you own a car or depend on transit? 

find opportunities to cut back

Many service providers, like cable, Internet and cell service providers, will negotiate with you in order to keep your business. Maybe your insurance provider will come through with a reduction. Ask your landlord if they will reduce your rent for a period of time if you offer to cut the grass or paint your unit. You may need to consider renting a less expensive place or selling your home and downsizing. You won’t know unless you ask. All they can say is no. And then you can make the appropriate adjustments. 

get creative with spending

Think outside the box. Consider changing where you shop for food and clothing, if there are more budget-friendly options. Get your books from the library instead of buying them. Carpool or use transit. Check out activities for children at the local community centre or library. Make birthday gifts and cards instead of buying them. Put your gym membership on hold and take walks with your kids or dust off your bike and ice skates and spend time outdoors. The Internet is packed with budget-friendly, healthy meal ideas. 

cook everything at home

Busy professionals often give into the convenience of dining out or ordering food, rather than cooking. If you already make cooking at home a priority, great!  If not, making your meals from scratch can significantly cut back your food bill. (And an added bonus: it’s almost always healthier!) Get your kids involved; don’t scare them but do let them know as a family, you’re facing exciting times that may feel like a challenge and ask for their participation in coming up with solutions. You’ll be teaching them resilience – one of the most important gifts a parent can bestow. 

don’t skimp on your long-term goals 

If you have the flexibility to do so, things like owning a home, saving for your children’s education, taking a once-in-a-lifetime vacation you’ve been planning for months, or finishing that degree, are still important things to spend your money on. If you absolutely have to, cut back on these things last. These are all still attainable even if they need to be reimagined. After all, life isn’t just about the size of your paycheque!

Adjusting your lifestyle to support a lower income is almost always a temporary measure. Even if it isn’t, it’s a skill you’ll get better at with practice. The skills gained in being able to survive are what former generations relied on and how they survived in deeply troubled times. Remember, at the end of the day, wherever you and your family are is home. Once the dust settles and the panic subsides you may be surprised at how good it feels to ‘travel light’. Knowing you can weather any storm is empowering!

not feeling great about the compensation at your current job? it might be time to look for a new job.

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