A lot of small and medium organisations are facing a Hobson’s choice in order to sustain and that is salary cut.
Though the market is moving towards normalcy in phases, the recent spike in many cities across India, makes the future uncertain. Cash flows still remain blocked due to the fear of another wave and the slow vaccination progress. Thus, organisations are under pressure to either cut salaries or risk their own future.
While several large-sized conglomerates including the Tatas, Reliance, Aditya Birla, Essar, and JSW groups have resisted any salary cuts to date, many mid-sized companies have done so. But at the same time, in their communication to employees, CEOs have promised to restore the cuts and refund deductions when cash flows improve.
But till that happens, the big question remains, “How to deal with the pay cut?” There is always a fear of being the boiling frog if you are not being realistic to the situation.
I would like to share a few points that will help you to be realistic and plan for the future.
Be Realistic and Get Clarity
Depending on the income and monthly expenses, salaried individuals fall into three buckets.
- Those who can continue to pay for expenses including equated monthly instalments on loans and also invest regularly.
- People who can manage expenses but are likely to fall short of money to continue investing.
- Salary earners who may struggle to manage expenses.
The first category needn’t worry. But, according to financial advisers, those in the second or the third bucket can do a few things to tide over this difficult phase.
The more clarity you have, the easier it will be for you to plan your finances.
Seek information about the duration and the proportion of the salary cut. If the organisation is planning to repay the deduction, it will be a good idea to get the approximate timelines. This helps you make financial commitments to the banks and gives you mental peace.
Stop Investments
There’s no harm in pausing monthly investments if that would shore up contingency reserves.
“You need to temporarily stop your investments because the more important thing is to get on with life,” said Sadagopan (Suresh Sadagopan, founder of Ladder7 Financial Advisories). “Whatever salary cut the individual is facing is not permanent. It is not because they have been inefficient… It’s no reflection on the person’s capabilities.”
Sadagopan said sooner rather than later, the earnings will bounce back to the original levels. It’s even possible that organisations, if possible, will compensate employees for the lost income by giving a bonus, he said.
Yet, systematic investment plans or SIPs of mutual funds can’t be halted immediately and withdrawals, too, take time.
Prioritise Short-Term Goals
If you have some amount available to invest but not enough to continue all your regular investments, you should ideally focus on near-term goals that are non-negotiable.
For long-term goals, there is more leeway to make up the difference when normalcy returns. This is also a great time to sit down and analyse your expenses. With discretionary expenses severely curtailed because of the lockdown, it’s easy to identify how much money you absolutely need for your living expenses.
That should leave a little more gap for people. And that gap could be used to make up for some of the shortfall in the investments.
Work on building your skills
With the market opening up, the talent demand has already started to increase.
Organisations have resumed hiring for various positions that they had to let go off due to the pandemic.
Many online platforms are offering certification courses in various fields. Keep working on your building your skills and add more knowledge which will be crucial for your next big leap.
Summary
The phase is indeed difficult for everyone, but not being realistic, not being planned will only make the situation worse. To sail through this successfully it’s important to keep your mind stress free, be future minded and be solution oriented.
Hopefully normalcy will return soon and probably then I will write something on best investment options for beginners 😉
Sources: thebalance.com, business-standard.com, livemint.com
Author: Vishal Punetha
Corporate Training Consultant
I Train Consultants India Pvt. Ltd.
