The pandemic has hit many people financially. While millions of people have lost their jobs, there are also millions who have taken a pay cut. Our family is very grateful that my husband has both kept his job and been able to work from home the majority of the time. However, he did experience a significant reduction in salary.
How a Pay Cut Has Affected Our Finances
Essentially, my husband’s pay cut brought his salary back to where it was six years ago. When we found out the pay cut was coming, we immediately took action.
Practice an Attitude of Gratitude
Before I even set to work altering our budget to adjust to the new income level, I practiced an attitude of gratitude. Yes, having a pay cut will make managing our money a bit more difficult, but my husband still has a job. That job, together with my freelance work, still provides enough money to support our family. The job still provides us with health care benefits and money in our retirement accounts.
This mind set helped me start to tackle the new budget and think of it as a challenge rather than a struggle. Even with less money coming in, we’re still in a good position. That alone is much to be thankful for.
Eliminate Extras from the Budget
Next, I looked at the subscriptions that we have. I had an eight dollar a month subscription to an exercise site. Sure, it’s not much per month, but I really didn’t need that subscription. I’ve found plenty of work outs for free on YouTube.
I also had a subscription to a foreign language app for another $7.99 a month. I deleted that and instead signed up for Duolingo, which is free.
We had about six monthly subscriptions in our budget, and we cut about half of them.
Find Corners to Cut
After I eliminated the easy fat from the budget, I set to work finding corners to cut.
Reduce the Grocery Budget
I had raised our grocery budget in March when it was hard to find groceries in the early days of the pandemic. Now, I cut that back. I also changed the meals that we eat. Instead of having meat at every single dinner, I’ve instituted a two-night-a-week vegetarian meal. For the other nights, I try to mostly pick meals where meat serves as a condiment rather than the main star. For instance, we’ve enjoyed bean soup with one slice of bacon crumbled on top per bowl. By doing this, we’ve found some new recipes we really enjoy.
Reduce Other Budget Categories
We used to have a travel fund line item in our budget. That one is now gone. Not only is it difficult to travel safely with the pandemic, but we simply don’t have the money to travel now.
Likewise, we had a spend category for my husband’s interests and mine as well as activities we did with the kids. I didn’t want to eliminate that one entirely, but I eliminated it by about 75%.
Increase Some Budget Categories
As strange as it seems, while I was slashing budget categories, I also found a few that I thought prudent to increase.
Despite the budget cut, I still make emergency fund savings a priority. Even though our money is tight, life still goes on. Over the next few months, we will likely need a car repair. We’ve already had an $800 home repair during the first few months of the pandemic. We will likely need to see the doctor or buy medicine.
I want to continue to save for emergencies and recurring, irregular expenses. If I slash those categories to make our budget a bit more comfortable, then when the expense pops up, we’ll have no way to pay it. That would cause us to go into debt, which we both want to avoid at all costs.
This may sound strange, but I chose to increase our kids’ allowance. We have always had our kids’ allowance directly tied to the chores that they do. Since we’re home so much now thanks to the pandemic, I increased the number of chores that they do. (Our house gets much messier when we are in it 24-7.)
Why did I increase their allowance when money is tight? Simple. Now, they have their own money and their own budget. For instance, my daughter wanted to buy some paints, a paint-by-number kit, and some yarn to keep herself busy with crafts. She used to ask me for those items, but now that she has a larger allowance, she will pay for those items herself. Now, I don’t have to be the bad guy saying we don’t have money for the items. Instead, she (and our other kids) get to pick and choose what they want to buy and what is most important to them. They’re in control, not me.
Ramp Up Other Work
As soon as we learned about his upcoming pay cut, I set about increasing my work. My husband’s income provides about 80% our monthly income. While increasing my work load won’t make up for the decrease in his salary, it does make up for a bit. An increase in my work load makes the budget a little less restricting.
Find Other Safety Nets
I mentioned to our financial planner that my husband was getting a pay cut. He let me know that for the year 2020 only, I could withdraw from our retirement account without facing the typical 10% penalty IF our pay was cut or we got COVID-19.
I don’t plan on using this option, but I do appreciate knowing that the option is available should we desperately need it.
How a pay cut has affected our finances is pretty dramatic. However, we’re still financially sound. We’ve taken the important steps to continue to live within our means and weather this storm. Most of all, we’re grateful that he still has a job and that he has the flexibility to work from home.
Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.
Oh, man. That’s tough, but at least you were able to prepare for it a little bit. Best of luck!