The COVID-19 pandemic has brought the global economy to its knees, and inevitably many employers will need to contain costs by cutting salaries.
Being hit with a salary cut or a retrenchment is something every employee dreads, but it’s important not to panic and to manage the situation as responsibly as possible.
Even if you suddenly have to downgrade your lifestyle and spending habits, stay calm. Be aware of the various options that are available to you to minimise the knock of a reduced income.
Re-prioritising and adjust your budget
Now is the time to be realistic and disciplined when it comes to budgeting. Set aside your previous ideas of what you absolutely need versus what is a luxury item you can do without.
Having an emergency fund in place that you save towards on a monthly basis should be part of every budget.
Negotiating with creditors
When your salary is cut, you may not be able to honour all debt obligations. To provide relief to their customers, financial services providers are open to extending repayment terms, which could reduce the monthly instalments and ease the pressure on your budget. But do check if additional interest charges are involved and think carefully before you decide.
It may help to also check whether you took credit life insurance when you signed up for a credit card or personal loan. Credit life insurance covers instalments for a period of up to 12 months if you are unable to earn an income, retrenched, temporarily or permanently disabled.
Different service provides may have different terms and conditions, however it is worth enquiring before you attempt to make a payment arrangement.
Reviewing your insurance cover
The best way to reduce premiums in lockdown – without abandoning cover altogether – is to reassess risk exposures and adjust short-term and long-term cover and premiums accordingly.
Reducing cover temporarily. A massive premium saving can be realised, for example, by simply changing the cover on an under-used vehicle while in lockdown from comprehensive to third party fire and theft.
Increasing excesses in line with reduced risk as claims are decreasing in lockdown. Even a minimal increase in excesses on any of your insurance policies may result in a reduction in premiums.
Make sure you keep your life policies but speak to your financial adviser to help you restructure your financial plan.
Talking to your family
Make your family aware that circumstances have changed, especially if you are a breadwinner. Play open cards about the debts you have to service so you can manage expectations and help your family adjust.
Exploring alternative streams of income
Consider using your skills and hobbies to generate some additional income, to help fill the void left by the salary cut.
It all depends on your skills set and if there’s demand for it. If, for example, you are a fitness expert you may offer online classes, if you are a qualified teacher or subject matter expert, you could consider offering to assist parents with home schooling during lockdown.
Adjusting to a reduced income may be frustrating because of the impact it’s likely to have on households. If you are unsure about how to handle the situation, consult an adviser to avoid making rushed decisions that you may regret at a later stage.