In a recent blog, I shared some strategies for managing a pay cut and preparing for financial emergencies like job loss, health issues, or other unforeseen circumstances. (If you missed it, you can read it HERE.)
A significant reduction in income can feel overwhelming, but having a plan makes all the difference. When my husband’s position was eliminated last year, his new role came with a 50% pay cut—a challenge that tested everything we had learned about financial stability. It was an opportunity to put the very strategies I share with my clients into practice.
Today, I want to share how we navigated this financial setback and the steps you can take if you find yourself managing a pay cut.
Managing a Pay Cut: How We Handled a 50% Reduction in Income
Our Background: Facing Financial Setbacks Over the Years
In our 27 years of marriage, we’ve faced two job losses and a significant reduction in income. We’re no strangers to financial emergencies. Here’s how we’ve managed these setbacks over the years.
2005: Unprepared and Relying on Credit
We had just bought a house we could barely afford, started a business using credit cards, and had various other debts. Everything we owned was financed. Both my husband and I were unemployed for three months with no savings or family to help us. Out of desperation, we lived off credit cards. It was a life-changing experience, and we vowed never to be in that situation again.
2013: Some Savings, But Still Stressful
Eight years later, we had learned a lot about managing money. We had no consumer debt and some savings, but not enough to cover six months of expenses. With two kids, our expenses were higher, and I constantly worried about running out of money. We managed to get through it without taking on any debt.
2023: A 50% Pay Cut and a Different Outcome
When my husband’s income was reduced last year, it hit us hard emotionally. The fear and uncertainty crept in, reminding us of our past struggles. But this time, things were different. We had no debt and enough savings to sustain us. I felt a mix of anxiety and relief—anxiety because of the sudden change, but relief knowing our finances were much stronger this time. We knew we could face this challenge head-on with a solid plan and the lessons we had learned over the years.
How to Budget and Manage a Pay Cut
Step 1: Reviewing Our Emergency Spending Plan
I was so thankful I had an Emergency Spending Plan ready before our income was reduced. After the initial shock, I reviewed and updated it. This plan told us exactly how much money we needed to survive and gave us confidence in our decisions. (Learn how to create your own Emergency Spending Plan HERE.)
Step 2: Making Smart Spending Cuts
We got even MORE intentional with our money, choosing where to make cuts and what to keep.
✅ Expenses We Cut:
- Reduced eating out
- Paused investment contributions
- Focused on essential expenses
✅ Expenses We Kept:
- Continued tithing
- Covered upcoming medical expenses
Step 3: Increasing Our Income
I took on more clients and additional contract work to increase my income. It wasn’t easy balancing the increased workload with family responsibilities, but the goal of keeping our emergency fund intact kept me motivated.
After a few months of cutting expenses and maximizing income, it became clear that my husband needed to find a new job to achieve our financial goals. We realized that no matter how much we tightened our spending plan or how hard we worked, his current position wouldn’t allow us to live the life we wanted, invest for our long-term future, or even have the peace of mind we needed.
Despite his dislike for change and the fear of stepping into the unknown, my husband made the difficult decision to switch jobs. We knew it was a necessary step for our family’s financial stability and long-term goals. His courage to embrace change not only improved our financial situation but also strengthened our resolve to face challenges together.
Key Lessons for Managing a Pay Cut
Lesson 1: Have a Financial Backup Plan
I’m incredibly proud to share that we navigated our most recent challenge without needing to dip into our emergency fund. It really showed us the power of our emergency plan and the discipline we’ve honed over the years.
Lesson 2: Emergency Funds Help, But a Plan Matters More
While I always encourage having an emergency fund, I’ve also guided many clients through job losses and financial setbacks without one. It’s about having a solid plan and the determination to persevere. Our journey is proof that with determination and wise financial choices, you can overcome challenges and emerge stronger.
Steps You Can Take to Prepare for a Pay Cut
Financial emergencies are tough, and it’s impossible to eliminate all the emotions that come with them. But being prepared can make a huge difference.
Step 1: Create an Emergency Spending Plan
An emergency spending plan helps you know exactly what you need to survive during financial uncertainty. If you haven’t created one yet, you can learn how to make one HERE.
Step 2: Reduce Debt While You Can
The less debt you have, the easier it will be to navigate unexpected reduction in incomes.
Step 3: Be Ready to Increase Income If Needed
Sometimes cutting expenses isn’t enough. Having a plan to bring in extra income—whether through side work, job searching, or consulting—can be crucial.
Final Thoughts: Building Financial Resilience
If you’re ready to take control of your finances, I can help you create a step-by-step plan. Let’s work together to make sure you’re prepared for whatever comes next. Schedule a complimentary call HERE.
