Taking a Pay Cut: When is it a Good Idea?
Just hearing the word.
It invokes a feeling of, well…ouch. Right?
It would be great if income always made a steep incline upward no matter what choices we make or what turns the economy decides to take. But a cut in pay doesn’t necessarily mean gloom and doom.
It can certainly be a tough transition, but it can also be a step in the right direction.
Let’s take a look at some instances when accepting a decrease in pay can be the right situation for you.
When it Means Keeping Your Current Job
When hard times befall your workplace, making less money than you have been at your current job may sound like a real bummer. On the flip side, in an environment where the alternative could be no job at all, staying put with a little less green can make a lot of sense. For one, accepting the pay cut and doing your job well can be a clear sign of loyalty and can be a great support for your case when you ask for a raise once the overall health of the company improves. If you have decided that it’s time to move on, staying and having your current income intact can give you the freedom to take your time while you look for your next position.
When You’re Changing Careers
So you’ve been offered an incredible job at a nonprofit that you feel passionately about. You’ve landed your dream job. When the conversation reaches the point of salary specifics, however, you may be surprised when you see a lower salary. It’s not uncommon for those who are starting a career in new industry to find out that they’re going to be bringing in much less income than in their previous position. For example, if your new dream job is with a start-up, you can often expect to make below market value, at least at the beginning. Similarly, if you move to another area of your current company utilizing your industry knowledge, you may feel a pay slump since you will not be valued the same way since you need to gain expertise in your new function. For example, if you move from the sales department to the human resources department. You could very well have a tremendous knowledge base for the industry you’re in and the specifics of your current company, but you would still need to acquire the experience in your new position necessary to command a higher pay grade down the road.
When You’re Starting Your Own Business
It takes time to grow a business. Time to spread awareness of your product or services online and in your community. Time to find the right people or services to work for your new business. Time to get the hang of the comings and goings of business ownership. It takes time. Period. So it makes sense that you’re not going to have fat pockets right out of the gate. Money often needs to be invested in the business before profits start to come in so, as an owner, paying yourself can often be at the bottom of the totem pole when the bills arrive. It can be challenging to move from a secure salaried position to the life of an entrepreneur, but for many people longing to be their own boss, the trade-off is worth it.
When You want More Job Flexibility
One of the great things about working in the technology age is that we have the opportunity for significant flexibility when it comes to our careers. Not everyone works in an office or even in the same city as their employer. We also don’t necessarily need to work the traditional 9 to 5 workday to have a successful and fulfilling career. Some people find that when they attempt to create this work/life balance, that there can be a reduction in income since there are fewer hours at the office. People choose to work fewer hours or to work from home for a myriad of reasons including the desire for more time at home with their family, more time doing leisure activities, or simply because they feel that they work better and more efficiently with flexibility in their day. No matter what the reason, the trade-off is worth it for many people as shown with the growing numbers of those in the workforce utilizing these flexible schedules.
When You Want to Move
Maybe you miss your family. Maybe you’re tired of the cold winters and want to move to a warmer spot. Maybe you’ve had a child and want to be in a specific school system. Whatever the reason, many people decide to leave a job behind for the simple reason of geography. Depending on where you land, it is possible that your new location could have fewer job opportunities. For example, if you move from a large city to a small suburb or rural area, the number of available positions could be dramatically lower. The result could mean the need to look for a job in another industry where you have less experience or even taking the same type of position you had before at a lower wage.
Sometimes life takes some twists and turns. The trajectory is not always narrow and angled straight up. Either by our own decision or someone else’s, we can be faced with the reality that we’ll be bringing in less income than we have been in the past. Just take a step back, evaluate what your financial situation is, and come up with a budget. If you already have an emergency fund in place, this can be a substantial help if you run into some unexpected expenses during your leaner times. It’s also a good idea to consult with a financial planner in order to get yourself organized and to evaluate what you need to do to stay on course with your goals.
To learn more about this topic or to discuss your financial goals, schedule a free, no-obligation discovery meeting with FamilyVest today.