An unprecedented number of employees have suffered pay cuts as a result of the Covid-19 pandemic and many have also been forced to take no-pay-leave, reduce their working ours or take up redeployments. Been affected in one of these ways? Here are five ways to beat the crisis and even come out stronger.
Let’s get one thing out of the way – a pay cut is by no means a minor event. Having a reduction on your income forced upon you likely means not only short-term sacrifice, it could also affect your longer term goals and force you to rethink your financial plans.
Therefore, when hit by a pay cut, it is normal to feel anything from anger and resentment, to panic and disappointment, and you should give yourself time and space to deal with your feelings.
However you choose to process your feelings about the matter, be sure to do so in a healthy manner. As much as possible, you’ll want to work towards acceptance so that you can move on without being held back by unresolved fear, anxiety or shame.
Part of the difficulty of dealing with a pay cut comes from the fact that we are creatures of habit. Because we grow accustomed to a certain lifestyle that comes with a certain level of income, suddenly having to adjust to a lower budget can be disorienting.
But, just as we’ve gotten used to our present standard of living, so can we adjust to a new normal. Why? Because we’re creatures of habit.
Re-do your budget to fit your lowered income by grouping your expenses into three colours – green, yellow and red (yes, just like a traffic light).
- Green – expenses that need to continue (utilities, mobile service, meals, groceries insurance premiums, other essentials)
- Yellow – expenses that you reduce or put on hold (credit card debts, loan repayments)
- Red – expenses that you stop completely (holidays, entertainment, coffee, recreational classes, memberships or subscriptions)
Your new budget should consist mainly of expenses in the green category, which are essentials that you need to continue paying for. Besides the obvious ones such as food, groceries and utilities, you should also include things like insurance premiums, lest you lose your insurance coverage and suffer heavy financial penalties along with it.
For expenses in the yellow category, you should try your best to hold or reduce them. This means that for credit card debt, switch to paying only the minimum each month (3% of card’s outstanding, or $50, whichever is lower), and make plans to pay off your debt once you’re able to in future.
As for loan repayments, reach out to your bank to restructure your loan. Either extend the repayment period for lower monthly installments, or ask the bank for a ‘haircut’, which means forgiving the rest of your debt in exchange for a lump-sum payment of part of it.
Lastly, for expenses in the red category, simply cut them out until you can afford them again. Be creative and come up with alternatives to help you adjust to the onset of deprivation.
After re-doing your budget, you’ll get a clearer picture of how much you need to maintain a basic standard of living. The next step is to take stock of your how much money you actually have and how long it can last you according to your revised budget.
The money for your war chest comes from your savings, bonuses (such as severance pay, if you got retrenched), dividends, endowment cashback, personal loans and other easily accessible forms of cash.
You may include your credit cards in your war chest, but you must only use them for one specific feature – the 0% interest installment payment. This converts a big-ticket purchase into a 12 or 24 month installment plan with 0% interest charges. Use this at eligible merchants to pay for costly essential items, such as laptop computers or a new air-con system, but be sure to make room in your budget for the installment payments, lest you get slapped by penalty fees.
Taking stock of your war chest also gives you a timeline that tells you how long you have till things become unsustainable and you absolutely have to get your income back up. This can free you from anxiety and help you make the right moves for the next stage of your career.
Make use of your new-found spare time to explore part-time or freelance assignments that are aligned to your interests. You’ll supplement your income (making your war chest last longer), but more importantly, you can have the opportunity to try out different jobs and projects in sectors that you’re interested in.
Through part-time work or freelance assignments, you can showcase your talent, gauge your aptitude among professionals and make important contacts – three crucial factors you’ll need to build a thriving freelance career.
Or, even if you don’t want to fly solo, you can use this opportunity to create a side gig to generate replacement income while you work out your next career move.
Recognise that pay cuts are a way for companies to reduce expenses and save jobs – it doesn’t mean that your skills and experience have fallen in value. Someone with your professional profile may attract a higher salary in a different sector. Or, you may be able to go back to your old salary in a different job function.
Now is the time to be flexible and brave, and open yourself up to multiple career paths. At its core, every job is about solving a problem or fulfilling a need. This means that your skills and experience may be more transferable than you think.
Take a good, hard look at your career thus far, and ask yourself what problems have you been solving? What needs have you been fulfilling? Then, try to identify job listings outside of your sector or role that seek to solve these same problems, or fulfill similar needs. You may just surprise yourself how many more careers now look like a possibility.
Text: Chip Chen/ Her World/ May 2020
Featured Image: kenishirotie/ Envato Elements