Dear New Frugal You,
My boss just announced that we’ll have to cut back our hours by one day every two weeks. He said it was that or lay off some people. I’m glad they didn’t do a layoff, but how am I supposed to pay my bills when I’m taking a 10 percent pay cut? He said that they hoped it would be temporary, but didn’t say when it would end. How do I adjust my budget to a temporary cut in income? — Jeremiah
Ouch! Taking a 10 percent cut in pay is hard. But, the fact that the company chose to cut hours instead of layoffs is a positive sign that they think business will revive. Let’s see what we can do to help you get through the cut in hours.
The obvious easy answer is to cut your spending by 10 percent. That’s more easily said than done, especially if you’ve been dealing with higher prices without a raise for the past few years as most of us have.
Expect some of the budget reductions to hurt. You’ll be forced to cut some things you don’t want to cut. But, if you can accept that fact at the beginning the whole process will be easier.
Accept, too, that you’ll be tempted to use credit cards to make up the difference. Don’t do it. You’ll only be postponing the inevitable and making the situation worse.
I hope you already have a budget or spending plan that will tell you where your money is being spent today. If you don’t, you’ll need to go back through your checkbook and statements to know what’s currently happening.
You can target a percentage of your spending or a specific dollar amount. I’d suggest you aim for a dollar amount that you want to cut each month or each pay period. There’s less math involved without the percentages.
Sequestering yourself — that is, cutting every budget category by 10 percent, like the federal government — is the most straightforward. But — again, like the federal government — that’s both hard to do and not really smart. Some categories, such as food, are easier to adjust because you make lots of purchasing decisions and have plenty of opportunities to save. Others, such as utilities, are more difficult. At some point, you have to have heat in the winter. Sure, you can nudge the thermostate, but it quickly becomes nearly impossible to cut some categories.
A better approach would be to see where you can make some big savings with a single action. Think refinancing the house and checking your insurance. If you’re fortunate you could make a big step toward your goal here.
Once you’ve covered the big items, we’ll go to the biggest categories. For most families, our biggest expenses are home, auto and food. Between them they generally consume between 65 percent and 75 percent of our take-home pay. We don’t have the space to get into details on saving in those categories, but you’ll find plenty of resources online to help you reduce those expenses.
Next, look at some of the smaller categories, such as entertainment and clothing. Perhaps you can cut way back or even eliminate them until the furlough is over. Remember that you’re taking necessary steps, not easy ones.
After cutting your spending to the bone, look for ways to increase your income.
Are there ways that you can earn money on your forced days off? Use the opportunity to turn a hobby into a small home business. Or you might be able to find part-time work on that day. Some work-at-home opportunities might fill the time productively.
Even if you can’t find a way to make money, don’t waste the furlough days. Use the time to look for a new job, increase your job skills or volunteer at a nonprofit. Those activities don’t provide an immediate benefit, but they could help build your network and open opportunities later.
It’s unfortunate, but there are no easy ways to adjust when your hours have been cut. Most of us have already cut the fat from our budgets. Now anything we cut is going to be difficult. If you are looking for a silver lining, the fact that your employer chose to cut hours rather than laying off people is a good sign that they think the cut is temporary. Let’s hope that’s the case.
See related: Tips for temporary income reductions
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