After being out of work for several months, you're probably happy for any job -- regardless of how much it pays. But while a lower paying job is certainly better than unemployment, adjusting to a lower salary has its challenges.
This might not be a huge issue if your spouse works or if you're living beneath your means. Sure, you'll miss the extra income on your check, and you might not contribute as much to your savings account, but you'll survive nonetheless.
Then again, your situation may be completely different, at which time accepting a lower salary might severely impact your quality of life. Initially, you may feel that less money is simply unacceptable. However, if you haven't had any other job offers, and if your rainy day fund is running dry, accepting a lower salary might be the only alternative.
Regardless of your circumstances here are six ways to adjust to a lower salary:
#1. Reevaluate your housing
Getting by on less money may require moving into a cheaper place. Ideally, your house payment should be no more than 30% of your gross income. If your payments take a major chunk of your new salary, downsizing might be the only way to keep your head above water. Additionally, you can look into getting a roommate if you live alone. This person can share household expenses, helping you adjust to the pay cut.
#2. Contribute less to your retirement fund
If you previously contributed 5% or 6% of your salary to a retirement plan fund, you may wish to stay on the same path. However, if your new job pays less than your previous one, reducing your contributions to 2% or 3% can add hundreds to your paycheck each month, which can provide the extra income you need to make ends meet.
#3. Ask to telecommute
If you have a complete home office setup with internet, fax and a webcam, your employer may let you work from home (even if it's only a few days a week). This is especially beneficial if there's a long commute to the office. Plus, the financial benefits are undeniable. You can spend less on food during the week since you're more likely to eat lunch at home. In addition, you'll reduce your fuel cost each week, and lessen the wear and tear on your car. And since working from home reduces your yearly mileage, you may qualify for an auto insurance discount.
#4. Refinance your debts
Speak with your mortgage lender to see if you qualify for a refinance. Refinancing to a lower interest rate can reduce your monthly payments, making it easier to pay your mortgage on a reduced salary. This also applies to auto loans; and if you have other debts, such as a student loan or credit cards, consolidation or balance transfer offers can also result in lower payments.
Getting creative is another way to save money and adjust to a lower salary. Even if you embrace a thriftier lifestyle, you can't avoid certain expenses, such as home repairs, car repairs, daycare, etc. However, you can minimize (or completely avoid certain costs) by bartering or trading services with neighbors and friends.
For example, if it becomes harder to afford after school care for your kids following a salary cut, maybe a friend or neighbor can watch your kids for free, and in return you'll provide them with another service. If you're a teacher, maybe you can tutor their kids for free, or provide another service of equal value depending on your areas of specialty.
#6. Moonlight or freelance
Who says that your employer has to be your only income source? If you can't make it on your new salary, get creative and consider ways to generate extra cash on your side. You might be able to start a small side business with little out-of-pocket cash (weekend or evening childcare services, freelance writing/graphic design, office cleaning after hours, etc.) Or if you're not the entrepreneurial type, look into part-time work.
It's your turn. Have you ever had to settle for a lower paying opportunity? How did you adjust to your new salary?
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