Did You Have To Take A Salary Cut Due To The Pandemic? Here Are Some Ways To Manage Your Money

The COVID-19 pandemic stalled economic activity at an unprecedented scale globally, raising the spectre of job losses and salary cuts.

Illustrator/Ranak Mann

Apart from lexicons such as ¡®social distancing¡¯, ¡®asymptomatic¡¯, ¡®quarantine¡¯ and 'PPE' , terms like 'salary/pay cut' have also become part of our everyday life. Employees across most industries are experiencing one of the three situations ¡ª indefinite leave without pay, deep pay cuts or layoffs.

Industries across the spectrum are affected, segments such as travel, tourism, leisure and media are the worst-hit amid the ongoing pandemic. The biggest challenge in this environment of salary cuts and layoffs is survival A study found that four in five people who have taken a pay cut, say it has affected their own mental well-being.

From sleepless nights, increased stress, to strained situations at home, the effect has been all too visible, and hence it's important to reign things in and look for a sane way to deal with this temporary crisis.

1. Start tracking expenses that are easiest to cut

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Often the easiest way to make budget cuts is to stop or limit your discretionary spending. One thing that may help you categorize where you can cut back is to reanalyse the types of items you buy and replace them with less expensive, yet workable alternatives. This tip may help you prioritize where you make your cuts easiest and it's one of the most efficient ways to minimise cash flow.

2. Consider the EPF

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At a time when you face a cash crunch, a loan will be tempting, but it's best to resist the temptation. You will still have to service it after a few months. Another way out when you're strapped for cash is to dip into your Employees¡¯ Provident fund (EPF). In the wake of the pandemic, you are allowed to withdraw up to 75% of the balance or up to three months of your basic salary plus dearness allowance (whichever is lower) from your EPF account.

3. Arrange for liquidity

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If you think you can manage your current liabilities even with a pay cut, build an emergency fund; think of getting together an emergency corpus, and if you already have one just keep adding to it. It would also be prudent to revisit your insurance requirements.

4. Stay away from additional liabilities

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Financial experts always recommend keeping away from any form of additional liabilities in uncertain times like these. For existing loans, you could opt for the moratorium but only if you have no other option.

A moratorium is often effected in response to a crisis that disrupts the normal routine. In the aftermath of earthquakes, floods, droughts or disease outbreaks, an emergency moratorium on some financial activities may be granted by a government or the central bank. It is lifted when normalcy returns.

According to a Business Standard report, taking stock of the situation and in response to the temporary financial hardship, the RBI on March 27, 2020, said all lending institutions, including banks and housing finance companies, will have to give their borrowers a three-month moratorium on term loans.

5. Make some lifestyle changes

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Sit down with your parents, spouse and children to review your household budget. It¡¯s very important to take stock of the situation instead of living in denial. The salary cut means your lifestyle will be affected and if you continue to spend the same amount of money, you¡¯ll find yourself in hot soup, sooner or later. Make an essentials budget and see what spending is really necessary. Try to negotiate your bills or defer big payments.

6. Look at other income sources

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If a pay cut or job loss has made it difficult for you to remain afloat, you may want to monetize your skills and hobbies to generate additional income. If you have financial dependents, like your spouse, parents or kids, this extra money could help you stay afloat. For example, if you're qualified enough, there are ways to register as an online tutor, especially since physical teaching seems to be a little further into the future.

No matter your situation, navigating a pandemic isn¡¯t easy and can be taxing. Being gentle with yourself is of utmost importance and as for your financial goals, things will fall in place. Don't give up on the goals that you set pre-pandemic; this is just a rough wave we all have to ride.