COVID-19 doesn’t seem to be abating and now that the lockdown has extended until 3rd May 2020, uncertainty on many fronts may be hanging over your head. In these times, what concerns most is the chances of getting a job loss or a pay cut. If one of these happens with you, things can get out of hand, and by things, we mean ‘finances’. Well, it’s not fair to receive a pay cut notice without any mistake from your side but do you have a choice here? You may or may not.
While we know that forgoing even a small portion of your income can impact your lifestyle, remember that this is temporary. Most importantly, acknowledge the fact that you are not powerless. Yes, let that sink in. Now read on to know what you can do and what you shouldn’t do if you are forced to take a salary cut.
Discuss the terms with your employer
Don’t shy away from asking your boss the way forward as it is quintessential for you to plan for the coming time. Your employer may have taken this step in unavoidable situations but you are entitled to know what it means to your livelihood. So asking questions about your pay cut at work wouldn’t be that bad. But also bear in mind to find a middle ground to safeguard your employment.
Here are some meaningful questions you may consider asking your employer about your pay cut:
- How long would the salary cut be in place?
- Will they compensate you for accepting a lower income in the future?
- Will they offer any other benefits to make up for the cut in pay?
- Can you add days to your work from home kitty?
- Can you take additional leaves?
- Can you reduce your working hours per week?
Downsize your lifestyle
Due to pay cut at work, there are high chances that you wouldn’t be able to continue a comfortable or extravagant lifestyle you lived before the lockdown. But instead of putting all the blame on a lower income, you may as well accept the valuable gift that the lockdown has bestowed upon you. What is it you ask? Well, for starters, the lockdown gave you a chance to re-look at your lifestyle.
By staying indoors for quiet some days now, it may have dawned upon you that not all your expenses are inevitable. That money you spend on feasting upon a Starbucks coffee or munching KFC’s fried chicken every alternate day can’t be unavoidable. Like these, there are several discretionary expenses that you can get rid off and free up your budget to meet other meaningful purposes. Getting the point?
Continue to repay your debts
With a pay cut concerning you at all times, you may be tempted to miss your debt repayments. While this may seem like an easy solution now, it may not actually be. You can’t stress enough on why it is vital to keep your monthly debt repayments going even in these tough times. Tell you why.
Whether you have a loan to repay, a credit card bill to pay or a monetary favour to return to your relative or friend, a debt, if not repaid on time, can become a nightmare. You will end up accumulating principal + interest + penalty, which together could land you in a debt trap. So, avoid missing your EMIs or credit card bills at all costs.
But what if you simply can’t afford to repay your debts now? Consider liquidating an investment to do it. You can invest again when things start to get back on track. The math here is simple. Generally, you pay more interest on loans compared to what you receive on certain investments. So, if you liquidate such assets, it would only save you from incurring a high penalty.
But if you haven’t been mindful and saved/invested at all, there’s just one option left: to exercise the moratorium offered by the government. The RBI has directed banks and other financial institutions to allow their borrowers a 3-month moratorium on repayment of loans that are outstanding as on 1 Mar. However, bear in mind that this is not an EMI holiday. This means that interest on your debt continues to accrue and gets added to your principal, which you have to repay post-moratorium. Do your calculations before choosing any course of action.
Rethink your investments
Your investments would also have suffered significantly in the recent times due to the impact of coronavirus. While as of now stock markets have tumbled, debt-instruments may also not remain attractive in the short-term, given RBI’s rate cut. This may discourage you from saving or investing anything at all. But that would be a mistake!
Your best move at such a time would be to stay invested in your existing avenues unless, of course, you have to dip in to meet day-to-day expenses. Remember, your ultimate goal is to cope with your salary cut. So, if it means pausing some of your high-value investments, you might as well do it. However, this doesn’t mean you don’t save at all.
Remember the consequences of not saving all this while and take that as a cue to save/invest every penny that you can. Continue investing for your short-term goals as they are sprinting towards you and a lower income may make things uncomfortable. As for your long-term goals, you can resume investing for them after you get a hang of sailing through with a lower income. On the brighter side, if you can manage to save for them now and your risk appetite permits, you can still continue investing for them.
Do not stop your retirement savings
Finally, don’t forget to park your funds for your ripe years. Nothing can replace your retirement investments therefore, pausing them would be foolishness. Tell you why. Cultivating a habit of saving and investing takes some time and effort, which you have already put.
If you stop now, getting back on track may not be very easy. You know it so continue adding to your nest egg. You can’t postpone retirement and its quality depends on your saving and investing actions now. So, don’t let yourself down.
While a pay cut notice can rob your sleep for some days, you can still tide over it by adopting the afore-mentioned ways to cope with your salary cut while maintaining your sanity.