We all know that the primary purpose of work is to earn money. It’s been that way since the beginning of time. But, as you also know, money isn’t everything. There will come a time in your life – or perhaps there already has – when you’re tempted to take a new job, for whatever reason. Sometimes, this new job will offer a wage lower than what you currently make.
There may be all sorts of reasons that this new position is attractive to you. For example, it may be a more prestigious company or a field that you’ve always wanted to break into. Perhaps you hated your old job or found is too stressful? But, how do you know if the pay cut is worth it?
Today, we’ll look at when you should and shouldn’t take a pay cut at work to be happy. We’ll evaluate the main reasons why you may decide that lower pay is worth it. We’ll also look at the circumstances under which accepting a pay reduction may be a bad choice. Finally, we’ll provide some tips on how to survive on a lower income successfully.
When Is Taking a Pay Cut for a Better Job Worth It?
So, let’s say that you’ve received a job offer which tempts you greatly. It could involve the same work, a different type of work or a different career entirely. Whatever it is, you feel that it’s the right job for you. The only problem: the wage you’ll be making is substantially less than what you currently earn. How do you know whether to accept, or say “no thanks”?
There are eight main situations in which a pay cut may be more than worth it:
1) Lower Stress Levels
According to the American Institute of Stress, over 80% of workers feel overly stressed at work. A quarter of Americans feel that their job is the number one cause of stress in their lives.
There are many reasons why. Your job duties may overwhelm you, or your work hours may be too long. Perhaps you have to deal with irate customers, a difficult line manager or unfriendly colleagues.
Whatever the cause, stress can be extremely problematic for your health. According to the Annual Review of Clinical Psychology, stress can damage the immune system, the heart, and mental health.
For this reason, it may be worth taking a lower paying job for less stress. If you feel that your new position would be less stressful, it’s worth living more frugally.
2) Better Work-Life Balance
Like stress at work, a poor work-life balance can also contribute to poor health, according to the European Journal of Public Health.
There are many factors which can alter your work-life balance:
- How many hours you spend at work each day
- Time spent commuting
- Time spent traveling for work to different locations, abroad, etc.
- Work-related responsibilities outside of the office. For example, having to answer emails or phone calls in your spare time.
- How much time you spend thinking about work
- Time spent preparing for, planning and contributing to work at home
A new job may offer an opportunity to improve your work-life balance. For example, it may involve working shorter hours, fewer responsibilities or more relaxed deadlines.
3) Better Location
Is there somewhere you’ve always wanted to live, but haven’t been able to on account of your job? Perhaps you’d prefer to be somewhere with better schools, public parks, or recreational activities. Maybe you’d like to move to where your family or friends are.
If the new job you’ve been offered is in a much better location, it may be worth the pay cut. A study in the Journal of Clinical and Diagnostic Research found that your place of residence can significantly affect your happiness levels.
You may even consider taking a job because it’s far closer to your home. According to Credit.com, the average American spends $2,600 per year on their daily commute. Whether you spend this on gas, public transportation, taxis or tolls, it’s a hefty chunk of your salary.
If your new job enables you to reduce your expenditure, it may make up for the pay cut. Not to mention, you’ll spend less time traveling to and from work.
Here are some of the best cities in America to find work.
4) Change of Career
We don’t all start out our working lives on our dream career path. Sometimes, you may find that your career isn’t right for you, once you’re already established. It can be quite hard to change careers once you’ve already spent a good chunk of your life in an irrelevant industry.
If you do manage to make the switch, you might find yourself starting off earning less than you were before. It may even be significantly less. Some careers, by their nature, provide lower salaries than others. For example, according to the Bureau of Labor Statistics, insurance salespeople make an average of $49,710 per year, whereas wholesale and manufacturing salespeople make $60,340.
However, as the old saying goes, money can’t buy happiness. If your current job isn’t right for you, and you’d like to start on a new path, you’ll have to accept that you’ll earn less, to begin with. As you gain experience in your new job, you may find that your earnings go back up.
5) Opportunity for Advancement
Have you been slugging away in your job for years on the same wage, with no chance of advancement? If so, you may have “hit the salary ceiling.” It’s sometimes not possible for your employer to raise your salary any more than they already have.
This is particularly the case for small businesses that don’t have the funds. Or perhaps they can’t promote you because there’s already an employee in that position whom they’re happy with.
When this happens, you may need to take a step back before taking two steps forward. Find a fast-growing company or a larger company with more room for salary increases. Though you’ll take a pay cut, for the time being, it won’t last for very long.
6) Better Benefits
A job isn’t all about how much money goes into your pocket, it’s also about the benefits that you’ll receive.
This includes the following:
- Health and dental insurance
- Life and disability insurance
- Pension plans
- Travel compensation
If you’re considering taking a new job with better benefits, it may be worth a pay cut. Many small to medium-sized companies can’t afford to offer generous benefits. Moving to a larger, more prestigious or stable employer may bring better opportunities.
For example, many people wonder “should I take a pay cut for a government job?” If the benefits outweigh the lost salary and you have greater job security, you should strongly consider it. And after all, there’s always an opportunity for raises and promotions.
7) You’re Not Happy
The average American spends one-third of their lives at work, according to Gettysburg College. That’s around 90,000 hours over the course of a lifetime. Why would you spend a third of your life in an environment where you’re not happy?
Taking a job for less money to be happy may seem silly, but it makes sense. If you’re not enjoying your work, you’re not truly enjoying your life. Starting a new job doing something you genuinely love, or in a more positive work environment, could contribute significantly to your quality of life. You have to make sure that the pay cut isn’t so large that it will damage your quality of life in other ways.
When Should Taking a Pay Cut Be Avoided?
So, now you’ve learned the seven main reasons why taking a pay cut for a new job may be worth it. However, there are some circumstances under which you should not accept a lower salary. Let’s go through these now.
1) There’s No Good Reason
When your potential new employer has offered you a lower wage, ask yourself why. Why does this employer think that you’re not worth as much as your current one does? Is it a reasonable pay cut, or do you feel insulted?
There may, of course, be a perfectly good reason. The company may be smaller and not be able to afford a higher salary. You may be breaking into a new industry in which you’re inexperienced and unskilled. In these circumstances, consider the above criteria to determine if the pay cut is worth it.
However, what if you’re experienced in the industry, and you know that your new employer could afford to pay you more? In this case, tread carefully. The company may be deliberately low-balling you, to see if you’ll take the bait. It may be worth sticking to your guns and demanding a higher salary. If they refuse for no good reason, it’s no significant loss.
2) You Won’t Be Happier
Do you know for sure that you’ll be happier in your new job?
Before accepting the offer, make sure you know every detail of:
- Working hours, including breaks
- Job duties and responsibilities, including how reachable you’d have to be after hours
- Any benefits
- Vacation time and sick leave
- What your work targets will be and how your performance will be evaluated
- The working environment and office culture
- The company’s stability
- The location of your new workplace, how long (and expensive) the commute will be
- Downsides to working for the company (don’t be afraid to ask this at interview)
- Others’ experiences working for the company (search on the internet, or ask around)
Carefully consider whether you’d feel happier, and be generally better off, under the new employer. If the cons outweigh the pros, or your current job seems better, it won’t be worth it. Also, be wary of an employer who isn’t completely transparent about the above. Don’t accept question-dodging or indirect answers.
3) Your Budget is Already Stretched
Next, it’s time to consider your budget. What’s your lifestyle like at the moment, and how would it have to change on a lower salary?
To do this, figure out how much money you’d be taking home each month compared to your current job. What’s the differential? How could you adjust your lifestyle to make up for this loss, without digging into your savings?
It might be the case that you can quickly identify aspects of your lifestyle to cut back on. For example: going out to eat, taking expensive day-trips or holidays and splurging on new clothes. In that case, carefully consider whether you’re happy to give up these perks of a higher salary.
If, on the other hand, your budget is already at its limit, you may not be able to afford a pay cut. If you already shop at discount stores and live paycheck-to-paycheck, it may be wise to stay where you are. Otherwise, you may end up going into debt.
4) No Advancement Opportunities
You’ll be taking a pay cut for this new job. Therefore, you need to know whether this would be a permanent step-down or only a temporary one. Would you be expected to remain at this lower salary for a considerable amount of time?
Talk to this new company about advancement opportunities in the new position. Ask them to be frank about your chances for raises and promotions in the future. If they dodge the question or don’t give you much hope, it may not be worth taking the pay cut. You may find yourself stagnating at the lower wage, unable to advance.
Of course, you may feel that this new job is worth a permanent pay decrease. If it’s your dream career, and you’re sure the new job will increase your happiness, go for it. However, in this case, you’ll need to make sure your budget can handle the pay cut.
How to Adjust Your Budget Following a Pay Cut
So, let’s imagine that you’ve decided to accept this new position. Although you’ll be earning less, you feel that the new job is worth it. You’ve carefully weighed the above considerations, and you’ve concluded that you’re going to do this.
As you’re now making less money, you’ll need to alter your budget in accordance. Unless you currently live on much less than you earn, your lifestyle will probably need some significant adjustments. Here are our top four tips on handling your pay cut.
1) Decide What You Can Live Without
The first step is to separate your budget into necessary and unnecessary expenditures. You’ll probably be surprised at the number of things you can live without.
Some examples may include:
- Gym memberships. You could just as easily go for a run, or practice body-weight exercises at home.
- Cinema trips. Wait for the movie to come out on DVD or Netflix.
- Takeaway coffees. You could brew your own at home instead.
- Magazine subscriptions. There are some great news websites out there.
- Eating out. Home-cooked food is not only much cheaper, but it tends to be healthier, too.
- Shopping trips. Do you need another pair of jeans, or can you make do?
- Manicures. A cheap nail file and bottle of polish will do the job for the time being.
- Snacks. You may not realize it, but those cookies and chips add up over the month. Stick to the good old-fashioned three meals a day. You may even feel healthier.
- Cable TV. Netflix and Hulu memberships are cheaper, yet offer a good range of TV shows.
Figure out how much you spend on unnecessary things per month, and then decide what you can lose. You may find that this is enough to keep you afloat.
2) Scale Back Your Necessities
Of course, there are some things that we can’t budge on. We all need to pay utilities, buy food, and to pay for things like childcare. However, that’s not to say that you can’t find ways to scale back your necessities.
Here are some examples:
- Shop at cheaper grocery stores. Do some research to figure out which grocery stores in your area are the cheapest. You could save a lot of money, even when purchasing the same items.
- Buy in bulk. Sometimes, buying larger quantities of certain items less frequently works out cheaper than buying smaller amounts every week.
- Search for discount codes and coupons. You might find these in newspapers or magazines, or even online.
- Shop at thrift stores for clothes. You might balk at the idea, but thrift store clothes are often good quality and always clean. This is a particularly good idea if you’ve got children, as they tend to outgrow clothes so quickly.
- Switch utility companies. Some electric, gas and internet companies charge more than others. Shop around and see if you can find a better deal.
After some time, you may be surprised at how much all these savings add up.
3) Add Extra Income
Don’t forget that your job need not be your only source of income. There are ways to make extra money here and there which could come in useful.
For example, if you have a spare room in your house, consider getting a roommate or a lodger. They’ll contribute to utilities, and pay rent. If you live in an expensive area, you could end up making a lot of money. Alternatively, use a site such as Airbnb to rent your room out occasionally to vacationers.
Now is also time for a good clear-out. If you have anything that you don’t use anymore – such as old clothes, electronics or games – sell them. Even if you don’t think each item is worth much, it will all add up.
Depending on your new job’s hours, you may even be able to fit in a part-time job. It needn’t be anything too demanding or prestigious. Even a Saturday retail or customer service job would help bring in some extra cash.
4) Create a Strict Budget
Finally, now that you’ve sorted out your income and expenditures create a budget. From your monthly income, subtract the amount that you’ll need to spend on rent, utilities, and other necessary expenditures (such as car payments and childcare). You’ll then be left with an amount that you can play with.
From this amount, give yourself a budget for groceries each week. Don’t forget to factor in household products such as toilet paper. Try to be frugal, but also be realistic. You can always readjust your budget if you find that it’s not enough.
Then, with the remaining figure, decide how much you want to put into savings. Some believe that you should aim to save at least 20% of your monthly wage. Depending on your income, this may not be possible. However, try to save at least a little each month. The rest you’re free to spend on “extravagant” purchases, such as meals out and day trips.
Make sure that you stick to your budget religiously. Every month, go over your bank statements and make sure that you’re not losing money.
We hope that we’ve been able to shed some light on your situation. You should now be familiar with the main reasons to take a pay cut, and the red flags indicating you probably shouldn’t. Finally, you know how to adjust your budget to cope with a lower salary.
If you still aren’t sure whether to take the new job, we’d recommend erring on the side of caution. You know yourself better than we do, after all. Jumping into a new job is not always as straightforward as making a list of pros and cons. It takes serious thought and involves a complete upheaval of your life.
Make sure that you know what the deadline is for accepting or rejecting your new position. Don’t be afraid to make the most of that time, to ensure that you’ve considered it carefully. And remember, you can always change jobs again in the future.
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