[This post is written by Miranda Marquit, a freelance writer and professional blogger who specializes in personal finance. She blogs at Planting Money Seeds.]
We all dream about what we’d do with a raise: finally get HBO, go on a shopping spree or begin that home improvement project. But, what about a salary decrease?
A recent COUNTRY Financial Security Index survey discovered 18% of Americans expect to earn less next year. Even if you don’t think a salary decrease is an immediate threat, you should still be prepared for the possibility.
1. Step Back and Evaluate the Situation
Normally, you have to sign a document agreeing to your new salary terms. Before you agree, ask for time to consider. Step back and evaluate the situation.
- Take the time to speak with your family about what you will do.
- Find out if others in the company are being asked to take a pay cut as well.
Before you agree to anything, you should know whether or not others are seeing the same pay cut.
2. Prioritize Your Expenses
List your expenses, making note of which are set, and which are flexible. Decide which items can be cut if needed. A pay cut – especially if it’s 5% or more – can greatly impact your monthly budget.
- Make sure the most important items on the list are covered (e.g. mortgage, electric/water bills, etc.). Don’t forget your long-term savings like retirement or a child’s college education.
- You might have to cut back on more flexible expenses (e.g. cell phone or cable plan, dining out, etc.).
However, if the cut is impactful enough, your retirement contributions might be one of the things you ultimately have to decrease, at least temporarily.
3. Negotiate Other Perks
If you are being asked to take a salary cut, perhaps you can negotiate other perks, like more flexible hours or telecommuting until the pay returns to normal. If your company offers tuition reimbursement, consider taking advantage of it to improve your skills in the meantime. Don’t leave free money on the table.
4. Evaluate Your Marketability
Speaking of skills, do you have valuable ones others might pay for? Now is a good time to consider your marketability. Develop traits others want in an employee. It’ll improve your standing when pay returns to normal. Or, if you find yourself facing unemployment, prepare by making yourself an attractive candidate.
At the very least, you can ask for a signed statement from the company explaining the salary cut. This is important. If you enter salary negotiations at another job, your compensation will likely to be a topic of discussion.
5. Consider Looking for a New Job
This is an option if you are worried about the impact of your salary decrease, especially if it’s expected to be permanent or if the company doesn’t have definitive plans to reinstate the old salaries within the next six to 12 months. Update your resume and tap into your network. Even if you aren’t quite ready to actively search for a new position, you should at least prepare yourself for the possibility.