01Create a New Budget
The first step is to create a new budget based on your new paycheck. If your new job is in a new location, your cost of living may adjust up or down, and you need to take that into consideration when you are taking your new offer. A salary can cover more if you are not living in a high cost of living area. When you build your new budget make sure that you are listing your necessities and luxuries in separate columns. It will make it easier to find the areas that you can cut back on more easily. You may need to switch a bare-bones budget at first to make sure you can make it with your current salary. When you make the decision to make less money, it will affect other areas of your life. If you are taking a job that offers bonuses, you should not include bonuses in your budget.
02Cut Back on Your Discretionary Spending
Often the easiest way to make budget cuts is to stop or limit your discretionary spending. You can do an easy across the board cut on all these categories. Try cutting your clothing, entertainment and food categories by ten percent across the board. These types of cuts may make it easy to find the money that you need without drastically cutting back in any area. However, they may not be enough, and you will need to pick and choose the types of cuts that make. One thing you may want to consider is the hourly cost of the items to help you prioritize where you make your cuts.
You may want to try alternatives to some of your traditional spending habits to cut your expenses. It helps to have a set number that you are working toward. This gives you a solid amount that you need to trim from your budget, which can make it easier to prioritize your expenses. You need to stop any bad financial habits because you no longer have money to waste on them. A frugal challenge may help you find extra ways to save and get control of your spending.
03Look for Ways to Save on Your Necessities
You can also work on cutting your monthly bills. When your lease is up, look for a cheaper place to live, or you may need to consider selling your home and downsizing if your cut is big enough. Another option is to scale back on your plans, meaning cable, Internet and cell phone. Although the savings may not be huge on each individual plan, the combination may be enough to help you save money. Cut out all the bills that you do not need. Often monthly bills like the charge for Netflix or Hulu are shuffled into the necessities category since they come out monthly, but they should not be.
Look into finding more affordable car insurance and health insurance. You may also consider changing where you shop for groceries to cut back on your food bill. You may be shopping at a more expensive store in the area, and you may be surprised at how much you can save simply by switching stores. These steps may mean that you do not need to cut your discretionary spending as much. You may be able to use these fifteen ways to save money.
04Don't Short Change Retirement or Savings
When you are making cuts, it can be tempting just to cut your savings or retirement contributions to make ends meet. It will hurt you in the long run. You still want to contribute fifteen percent of your income into retirement accounts. If you were at fifteen percent, you may decrease the dollar amount, while keeping your percentage the same. You should do the same with your savings goals. Keep the percentage of your income the same, and only decrease the dollar amount to meet that percentage. If you can avoid cutting savings all together, it would be better. It should be a last resort instead of the first thing you cut.
Take a look at your goals and find a way to continue to save money. If you make it automatic and have it transfer when you are paid, it will be easier to keep saving. If you have a smaller paycheck, it is even more important to have savings to rely on when you are dealing with an emergency.
05Think About Your Long-Term Goals
If this is a planned pay cut, be sure that you can still meet your other financial goals. This can include things like home ownership, retirement or vacation planning. If you know this is temporary, for example staying home until your children are in school, make plans on how you will improve your income when it is time to reenter the workforce. You may need to keep up with certifications or other training so that you can easily find a job.
Consider switching careers completely if you are not happy and look into opportunities to further your qualifications and increase your salary. Be sure that you are not running up debt during this time because it can continue to hold you back once you begin working again. It takes discipline to handle a pay cut because you are used to certain lifestyle expectations and it can be even harder when you have children in the home.
How to Cut Your Lifestyle When You Take a Pay Cut
There may be times when you have to adjust to a cut in pay. You may decide to switch companies or careers and take a lower salary because the opportunity for growth is great. You may be forced to take a pay cut due to layoffs or because your company restricted their bonus plan. Another option is that you may want to a job with less stress, and you may be willing to take the pay cut. It may be that you do not make as much you expected. When you know your pay is going to decrease, you need to take immediate steps so that you can continue to manage your money effectively. With any pay cut, it is important to carefully consider when and how you are going to cut back on your lifestyle.