How to Cope with a Pay Cut

In the current economic climate, a huge amount of people have been hit with pay cuts. For many people this has quite rightly been a huge shock to their system and caused them to massively change their lifestyle. Sadly, it is not always easy to deal with a pay cut, so hopefully this guide will give you some tips on how to cope in this situation.

Don’t Panic

This is very important. Panicking is not going to get you anywhere and you may find that things are not actually so bad. Don’t allow your stress levels to rise as poor health along with a pay cut can be a recipe for disaster. It might be a little tighter, but you may actually be able to maintain a roughly similar lifestyle as before.

Excel is Your Friend

It may seem strange, but for the most part people do not have a strict budget set out. Many people do not even have any real system to manage their finances at all. The first thing to do is use spread sheets, or even just a pen and paper to actually work out you’re incomings and outgoings each month. Once you actually know the amount of money you have, you can begin to get your finances under control. There are many helpful apps for this too. The top 10 are:

  • BUDGT(iOS)
  • Spendee(iOS)
  • Expense Manager(Android)
  • One Touch Expenser(Android)
  • Toshl Finance (Android, iOS)
  • Money by Jumsoft(iOS)
  • MoneyWise (Android)
  • Personal Finance (Android, iOS)
  • Concur (iOS/Android)
  • Expensify (Android, iOS)

Reduce Your Outgoings

If you have less money coming in after you work out your finances, then you need to spend less money. The key really is to separate needs from wants. Depending on the scale of your pay cut, all of your wants may have to be cut from your outgoings, or only some of them. Even shopping at a cheaper supermarket, or getting a cheaper mobile phone and internet package can save a huge amount of money. Gym memberships can be quite expensive so, even switching to a cheaper gym, or cancelling it completely may be another option.

Get Rid of Your Debts

Depending on your age, it may be inevitable that you will have a mortgage. Obviously most people cannot pay this off quickly or easily, so it is important to try to clear the more expensive debts. This type of debt would include personal loans, student loans and credit cards. The trick with credit cards is to use them less and pay off the full amount instead of the minimum. If you just pay off the minimum, then you will still be charged interest. At first, try and budget as much as possible to pay off your loans as quickly as possible, you will be glad to be essentially debt free in the long term. It will probably massively reduce your outgoings as well. So you may have more money for your wants. Whatever you do, don’t use a payday loan company; they charge insane amounts of interest and you will ultimately end up in a worse position than before.

Find out About and Claim any Benefits You are Entitled to

Depending on the level of income that you have lost, you may find that you are entitled to a number of benefits you were never aware of. For instance, every parent is entitled to child benefit for their children regardless of income in the UK and Ireland. Hundreds of thousands in the UK also fail to claim income support and employment and support allowance, pensions credits, housing benefits, council tax benefits and job seekers allowance.

Claim on Your Insurance

It is possible that your insurance has a payment protection policy. If this is true then it is important that you claim on this immediately. This may ensure that your mortgage or other loans are paid while you are sorting out your other finances. A period of guaranteed payment without any outgoings can have very positive effect on your situation. Just make sure that you are proactive in this time and sort out your finances properly, so that you will be able to cope on your new salary.

No one wants to cave a salary cut, however, some people either have been made redundant or received huge pay cuts. If this is the case, hopefully following the guide above will help you to cope with this unfortunate situation a bit better.