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?
I’m currently in Toronto scouting out venues for #CPFC15 (yes, it’s actually happening!!!). For those that don’t know, CPFC stands for the Canadian Personal Finance Conference, and it’s something that I co-founded with my pal Preet Banerjee back in 2011. We wanted to create an event for personal finance bloggers to get together, learn, and share ideas, and the 2012 and 2013 conferences both sold out extremely fast. Past presenters have included Rob Carrick, Dan Bortolotti, Ellen Roseman, Bruce Sellery, and Kerry Taylor. It’s the only conference of its kind in Canada, and I’m super proud to be part of it.
Preet stepped away from the event after 2013, and after a year hiatus, we are back on track and ready to make 2015 the best PF conference ever. :)
If you’ve attended before, or are interested in learning more, I’d love to get your opinion on a few ideas I have for the conference. It’d be really helpful if you could take a few minutes and fill out this survey for me!
To stay up-to-date on the latest #CPFC15 news, you can follow the hashtag on Twitter, and like our Facebook page.
Any questions? Leave a comment, I’d be happy to answer them all.
Do you get a year-end bonus from work around the holidays? I haven’t worked for a company that has given out annual bonuses for a while, but now I am, I’m faced with the problem of how I’m going to spend the money. A good problem to have. :) And while I’m tempted to spend it on a new laptop or a trip somewhere tropical, I know this small windfall will give me the opportunity to achieve a few financial goals I’ve been putting off.
Here are a couple smart ways I’ve spent my annual bonus in the past:
Pay off something
Do you have a small balance on your credit card, an outstanding medical bill, or are you six months away from making your final car payment? Using your bonus to pay off your bills will help lower your debt obligation – giving you more breathing room each month. When I was paying off my student loans, I would throw any extra money I had towards that debt, and was able to eliminate it a lot faster than I had originally anticipated.
Improve your home
This is a big one for me now that I’m a homeowner. I’m finding there’s always something that needs to be done, and often times I put it off until the last minute. But things that are barely working will break down eventually, and using the bonus money to get them fixed now will save me money in the future. I know that not only will these improvements make me happier hanging out at home, but it will likely also increase the value of my home in the process.
Start a side business
If you’ve been saving money to start a new business, or if you want to take your existing business to the next level, using your bonus is a great opportunity to invest your money into your future. I have definitely spent bonus money on improving my websites, office equipment, and buying hosting. And I have a couple of friends who have received bonuses and invested that money that into a real, legitimate side business. One used the money to buy supplies and launch a store on Etsy.com, where she makes anywhere from $300-500 in extra income each month. And the other friend was able to buy additional baking equipment, which allowed her to offer more items to her clients.
Set the money aside for the next time your home or car insurance comes up for renewal. That way you won’t be scrambling to find the money when the time comes. I used to get a small bonus every year from one of the companies I worked for, and felt pretty triumphant when it came to renew my car insurance, and could pay for the entire year in cash. Small win, I know. But back then, it was a major accomplishment. :)
Pay for a financial advisor
A financial advisor will be able to help you develop a personal plan of attack, and provide the peace of mind knowing that you are working with a sound investment strategy – and that you are on your way to achieving all your financial goals. Look for a fee-for-service advisor – unlike other financial advisors who might charge a percentage of your income or by trade, a fee-for-service advisor charges a flat fee or an hourly rate for providing specific services.
This year, I’m leaning towards getting a plumber in to fix my sink, and then putting half into my TFSA, and the other half onto my mortgage.
If you are getting an annual bonus this year, what will you spend it on?