Businesses may need to scale back on their activities every now and then. If growth is stagnant or declining, that’s something to consider. Oftentimes, that can mean lowering their employees’ pay rates. So what happens when you take a pay cut? Most likely, it’s because the company you work for is going through a constant slowdown in business.
It’s not the best thing to go through, but it’s necessary sometimes. No one likes to be notified that they’re getting a pay cut. In this post, I’ll go over someone I know who went through this situation.
Also, why it happens and may not be necessarily bad. When it does, I’ll go over what you need to do even before it actually takes place.
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A family member getting a salary decrease
Recently, my brother found out that he was getting a reduction in his salary. Luckily, he got that instead of getting let go from the company he works at.
My brother is a graphic designer, which is one that involves specialized skills. He’s very talented at it, and he gets paid very well for the job he does.
But not long ago his boss informed him that he would get a temporary reduction in pay due to the company experiencing a business decline. When I hear that, the company is likely going through a steady decline rather than a seasonal one.
Who knows if that will continue or not? But if it doesn’t, that may be good news for my brother. So his pay may go back to where it was down the road.
The reasoning behind getting a pay cut
There are many reasons why people may experience a pay cut. But when I think about it closely, I believe it’s because a business is experiencing a bigger slowdown than usual.
You often notice that happens during an economic recession. At the time of this writing, it’s likely that there’s a recession underway; however, it’s not official right now.
Although pay cuts are hard to make, it’s necessary for companies to do if they want to stay in business. If they don’t, it can be more challenging to operate a functional business.
What should do when you get a pay cut?
Whenever you get a notice such as getting a pay reduction, keep in mind it has nothing to do with you personally. If the company’s not meeting clients’ or performance expectations, it’s more of a larger problem with your job.
So when taking that pay cut, what’s the first thing you may do? Well, you’ll need to cut back on your spending. That’s not easy for everyone, but it’s necessary to manage your personal finances.
I’ve always been a believer in keeping your expenses low regardless of your economic status. It’s good to spend less than you make to keep yourself financially healthy.
What’s more important that you should focus on?
Besides cutting back on spending, what else should you be doing in the meantime? You need to prepare for a worst-case scenario, such as getting laid off from your job. It’s possible that could happen at any time.
Ask yourself this question:
- If you were to lose your job tomorrow, what would you be doing differently? How would you get through the coming weeks (or months) ahead of uncertainty?
While thinking that over, the most important thing is to work on increasing your skill set. Or, it’s something I like to refer to as your human capital: learning and acquiring skills that are going to make you more valuable in the future.
What comes next?
Continued learning and investing in yourself will benefit you no matter what. But, I do think that you need to take that extra step further.
Once you acquire those skills that will make you indispensable, the next step is to start something on the side (“side hustle”), which can turn into a business someday.
This type of business can be something you’re knowledgeable in, but something you enjoy doing. For example, it can be a freelancing business where you do graphic design for multiple clients.
If you were to lose your job tomorrow, what would you be doing differently?Eric Seil (Site editor of notimekillers.com)
A freelancing business doing graphic design is ideal for people like my brother. It’s also a skill that will be in demand for some time, and doing that on your own can earn you more income over time.
Another example could be starting a blog (or niche website) that talks about graphic design basics, or the target audience could be graphic designers for beginners. There are a lot of topics that can be written about the subject of graphic design.
My personal example
Going back to my brother’s situation, there’s no doubt that I think starting a business would benefit him so much. Whether that’s through freelancing or making a niche website for beginners, it’s another way to create another source of income.
For me, I believe that’s the best course of action when you take a pay cut in general. Or worse, if your job is at risk of being lost.
Do not delay: Take action now
I believe the global economy will continue to slow down for the foreseeable future. That also means that more people will get pay cuts, or even worse, lose their jobs.
My point is the following: If you recently went through this situation, or you think your job is on the line, do not wait until that happens. When you notice it, do something right away.
If you take the route of lifelong learning and starting a business on your own, you’re 10 steps ahead of everyone else. By taking that stepping point and taking action, you’re already doing yourself a favor.
If you’re interested in learning how to get started, I’m more than happy to share with you what I’m doing right now.
Here’s my go-to place to get started in the online business world. If you want to make another source of income, I recommend this platform to go in that direction.
Pay cuts are not uncommon, especially when a company sees a continued business decline. However, there are things you should be doing now to avoid worst-case scenarios.
If that means losing your job sooner than later, you have to take action now. The sooner you start, the less stressed out you’ll be down the road. Let me say that again: Do not wait any longer- start taking action right now.
Your Turn: Have you experienced a pay cut before?
I would like to get your thoughts on this topic. Have you experienced a pay cut before?
How have you dealt with getting a reduction in your pay? Did it have an impact on your living standards?
If you were in that situation again, would you take the course of action I recommend? Do you think it would help you prepare for the worst?
Feel free to share your thoughts by leaving a comment below. I look forward to reading your thoughts, and I’ll gladly respond promptly.
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Eric is the owner and chief editor of notimekillers.com. He takes great pride in helping people manage their time and grow their businesses. Eric is a firm believer in financial and time freedom, as he believes in financial independence and taking ownership of your time. “Time is your most important asset. It can be your best friend or worst enemy. How you use your time can shape the future you desire to have.” In his leisure time, Eric loves to write and read whenever possible. He enjoys going for long walks outdoors while doing in-home workout videos every week. You can also connect with Eric via LinkedIn.