Give Me Back My Five Bucks

When it’s worth it to take a pay cut

In my relatively short 9 year career, I’ve taken two pay cuts. Taking less money is a hard thing to even consider (especially if you’re like me, and you’re not making a lot to begin with), but there’s so much more to a job than just the actual salary. When I eventually decided to take on less money, I factored in so many other benefits into the equation, and in the end both pay cuts seemed worth it to me.

Here are 5 reasons why I would consider taking a pay cut in the future:

When you’re changing careers

I think one of the major reasons why people consider pay cuts is when they are switching careers altogether. It’s unreasonable to expect to receive a large salary when you’re moved into a job where you have little (or no) experience.

And in some cases, changing industries and location could come with a permanent pay cut. Bigger cities could come with bigger salaries, and different industries just might not have the funds to pay top dollar for the position you’re looking for. For example, when I moved from a government job to a non-profit job, I accepted a 20% pay cut. That might be a bit drastic for some people, but I knew it was the right path for me to take.

When you start your own business (freelancing)

Self-employment is a dream many people have. But with that dream comes a lot of risk, and that could include taking a pay cut while you get yourself established, as well as having to hustle harder to get work. I know a few freelancers who went out on their own with just a couple of key clients. They worked part-time hours until they could establish themselves enough to bring in more work and hire employees to help with the workload.

As someone who once decided to quit their corporate job and try out freelancing full-time, I can tell you that it was a struggle at the beginning. Eventually, I was able to create a steady stream of income, and ended up making more money than at my 9-5 job, while working significantly less hours each week.

When there is more room for growth elsewhere

If your career path is stalled because it’s a small company, and there’s no room for a promotion or salary growth, it’s hard to stay in one place. A short-term salary cut in exchange for better long-term potential and growth could be a great investment in your future.

When your work-life balance needs adjusting

A few years ago, I was working 60-75 hours/week at my full-time job and freelancing. It wasn’t something I knew I could do long-term, and eventually I gave up the extra hours (and the extra money) in favour of a life where I worked a normal 40-50 hours/week. I am significantly happier now that I have time to dedicate to what I really love in life – spending time with friends and family, being outdoors, and having more time to focus on myself.

And yeah, I do miss the money, but I definitely don’t miss the stress (or the lack of sleep).

When the compensation perks make up for the salary

When I accepted the job I have now (after wage negotiations) I accepted a 15% pay cut from my previous job. It was really difficult to deal with at first, and I didn’t think I would be able to take the job. But once I started to look at the compensation perks and benefits associated with the position, I actually end up coming out ahead.

Not only do I spend less time commuting (which also saves on gas), but the extended health benefits are more extensive, it’s a 37.5 hour work week compared to 40 hours, I can bank time off, I get paid out for overtime, and employees receive two bonuses each year. With just the bonuses included, and I come out way ahead.

What are other reasons you would take a salary cut for?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Dan says:

    I would probably consider a pay cut if it meant a shorter commute or other perks like health spending or employee fitness facility. There are so many things that make up total compensation that people shouldn’t focus just on salary

  2. I took a salary cut when I quit my 9-5 to work for myself. Turns out I just didn’t need as much money and I was happy working less to get more time to live. So, I don’t think it’s crazy to take a pay cut!

  3. NZ Muse says:

    I’ve done it for better hours/balance. I can’t see any reason to do it again in the future at this stage, though.

  4. I’d add when you move to an area with a lower cost of living. When we left NYC, my salary was a complete reversal of what I had been making, so a drop of almost $20,000. It was hard to accept but I had no idea how far the lower salary would go in a cheaper city. The lower number was hard to swallow at first but my standard of living actually improved by a lot.

  5. When your current job no longer brings you job satisfaction or you have become so efficient that you spend half your time browsing Reddit. I would take a pay cut to go home at the end of the day feeling satisfied.

  6. Alicia says:

    I’m in that situation now with my job search. I’m paid reasonably well and I’m hoping to change directions a bit, but I am realizing I will need to be flexible in salary. It sucks, but if it makes my life better (less stress and hatred for going to work), then the money is totally worth it.

  7. Bridget says:

    Great post. I took a paycut (almost -$20,000 yikes!!) when I did my internship. Maybe that doesn’t count because that’s what internships are about ;) but it was necessary to get some experience outside of academia and in the Calgary corporate world.

    I think the work-life balance is a really important factor that a lot of people overlook. Freelancing + working full-time is hard and sometimes those extra hours of your life are not worth the extra cash (especially when you’re taxed so much on the extra income because it pushes you into a higher tax bracket!!!)

  8. ARBM says:

    Balance is super important. I can’t say that I’ve necessarily taken a pay cut, but when I travel for work I get a lot of overtime pay. Now that I’ve been in the office for almost a couple months straight, I’ve lost that extra income, but it is so worth it to actually get to spend some time at home.

  9. SP says:

    I took a lateral salary move in my last switch because there was significant bonus potential. I was also switching fields. I recently switched back to my “original” field and took a salary that was equal to my previous bonus+salary for 2014, but less than what I likely would have made in 2015. The upward trajectory is much much flatter in this role. The reason was better fit of work, better commute, better hours, etc. Work life balance is often undervalued in these calculations!

    It was still hard to give up all the income growth potential in my last job – but i know I made the right decision.

    Your reasons make a lot of sense. It also is easier to do when you aren’t stretching to make your financial goals. I don’t know if it is an option when you can’t make your budget work!

  10. I’ve been giving this issue a lot of thought recently, asking myself if I would ever consider taking a pay cut for a job… I’ve come up with a lot of the same answers that you have so it’s nice to hear another personal finance blogger say it. Makes me feel less guilty for not always thinking of the money as the main motivator.

  11. You make some excellent points, Krystal. When choose between job offers, a lot of employees make the mistake of only comparing salary. They don’t bother to balance the ancillary benefits. At my current job I don’t get paid for overtime, but I do have a defined benefit pension plan, which is worth at least an extra $5K a year. I just wish there was more of a work-life balance. It seems like everyone works 12 hours days. I’ve never seen a workplace where so many people stay until 8PM at night. It’s depressing.

  12. alexislives says:

    I’d take a paycut for a better work/life balance or if there’s an opportunity to grow. Having a job that allows me to spend time with loved ones and enjoy my hobbies means more than money. In addition to the others you mentioned, I’d take a paycut to move someplace where I really want to live.

  13. Vivianne says:

    I took a $10K paycut when I switch job within the same city. I figured I would get to used my brain more. I was trained to do more than the cookie cutter job that they wanted me to do. It was well worth it. Because when I jump to my next job, it was a $23k gain. That opportunity wouldn’t come along if I haven’t taken that inital $10K cut.

    When you’re unhappy about a job, either get more education, get certified in more of your field, do a side job, cut spending, don’t need to feel like you get “stucked” somewhere because you have to. Everyone have choices.

  14. Ron says:

    When I took early retirement in 2008 at the age of 60 I had spent 35 years as a consulting engineer with a private Canadian firm. During my career I took pay cuts of up to 20% during recessions when times were tough. On every occasion, within a year of recovery from tough times all the pay that I had given up was returned with interest.

    The company founder was a man of conscience and considered his employees to be valuable assets of the company and part of an extended family. He looked out for his employees and they in turn looked out for the company. As a result the company grew from less than a couple of hundred employees to about 10,000 during the 35 years that I was there.

    Unfortunately companies such as this are few and far between in today’s world. CEO’s and company owners are far too short-sighted and selfish.

  15. TKB says:

    I guess the closest that I’ve come in terms of a pay cut was quitting a second job that, while it was a nice change of pace work environment-wise (more egalitarian, relaxed, good exposure to life outside my current field and that people aren’t all hierarchy a invested assholes) and worked for temporary situations like most of the college students there, it wasn’t a sustainable choice beyond the money in terms of skills, compensation, or work-life balance. But hey, minimum wage – not many expectations on either side of the paycheck.

    I was better off taking that 60-hour work week and trimming it back while investing work/commute time into my certifications, even if it was pleasant to have an ‘back-up insurance’ job to keep me afloat when things got shaky at my present field. A brief taste of that small financial security of having a separate income stream from merely one employer, even if it was another separate employer. I was a lot less stressed about that even though I was on a pretty tight and demanding schedule to keep both jobs and still manage health/social life/personal growth. I need to find a freelance or side gig that gives me more satisfaction eventually.

    In terms of my career, my current field pretty much stalled for me, so I’m looking to jump to a completely different field where the entry-level pay is about how much I would be making with about five more years spent in my current field. Would be comfortable if I actually enjoyed the work/wasn’t bored all to hell with it, but mostly it’s busywork of convenience. I wouldn’t be comfortable taking any kind of pay cut presently, just because my pay is already below the average income of most single person households.

    On the bright side, it leaves lots of room for upward mobility and I’ve an interview next week for my new field! :)

  16. Tim says:

    I’ve recently taken a pay cut with a new job transition… The opportunity I got myself into was AWESOME and I still think it is AWESOME…

    It will for sure give me credibility and most definitely a bigger pay bump when I move on from my current role…

    However, after took the new job and made the jump.. 6 months later the company I work for has started issuing the founding employees stock options for when the opportunity to go public may occur… so that in itself could be a nice pay day.. Not Guaranteed yet.. but my be a nice benefit… time will tell..

    The experience I am currently gaining in other areas is priceless…

  17. Cyrel says:

    Changing careers along with a paycut is hurtful to my budget but hey I don’t really mind the cut as long as the pay is on time. Well, a delay of a day or two would still be fine.

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