If your salary takes a hit in 2016, follow these steps to survive a drastic pay cut in Singapore.
First published on 30 March 2016. Updated on 10 November 2016.
Everyone wants to get a raise, and there are some indicators that pay raises will happen in 2016. But with layoffs on the rise, some experienced and highly trained Singaporeans might experience the opposite, and end up with lower-paying jobs. Given the poor economic situation in Singapore, even those who don’t lose their jobs may face pay cuts.
If your salary takes a hit, here’s how you can survive the rest of 2016 with as little sacrifice as possible.
1. Manage Your Loans Quickly
Debt management will get harder, so address it fast.
In an ideal situation, your debt ratio should not exceed 50% – this means the total repayments you make on loans, every month, should not go beyond 50% of your monthly income.
If your debt ratio exceeds 50%, you should consider the following:
- Talk to your bank to restructure the loan. Do this before any late payment notices, legal warnings, etc. appear in the mail
- Talk to a credit counsellor, who can help mediate between you and your creditors, and create a repayment plan
- If you still have money or savings, try to pay down loans until the debt ratio is 50% or under. However, do not wipe out your savings doing this; you will still need money for emergencies
- Switch your high interest loans to low interest loans. For example, use a low interest personal loan (6% – 8% per annum) to pay off high interest credit card loans (24% per annum).
2. Review Your Long-Term Financial Plans and Insurance
Your previous long-term plans, such as your retirement fund, will have to be changed to suit your current situation. You will have less to invest, and you may even need to liquidate (sell) some assets to pay off loans you can no longer service.
It’s best to speak to your financial advisor or a wealth manager about reviewing your portfolio. Even if you need the money right now, don’t sell stocks, bonds, etc. without a proper consultation. You may damage your wealth by selling the wrong asset at the wrong time.
With regard to insurance policies, inform your financial advisor that you may have difficulties meeting premiums. Don’t just allow your policy to lapse. Not only will this leave you uninsured, it could lead to the unnecessary loss of payouts. You are in not in a position to afford either of those.
3. Upgrade and Keep Seeking Greener Pastures
Do not stop looking for another job that pays as well as your previous occupation. Remember, downturns in the job market don’t last forever.
One of the worst things you can do is give up, and sink into a lower paying job for the next few decades of your life. Keep on the lookout. Write a job hunting plan (e.g. at least one interview a week, at least an hour a day sending resumes) and stick to it.
Take advantage of government aid, such as the SkillsFuture programme, to upgrade yourself. Ask a recruiter or your immediate superior which skills are most needed in your industry. This opens up the possibility of promotions, while helping to make you less dispensable.
4. Make a Progressive Budget
Identify your three main, controllable costs (e.g. transport, food, children’s tuition). Start by trying to reduce the amount spent, in each category, by just 5%. The next month, reduce it by 10%, and so on.
Few people can reduce a specific category by more than 30%, but try your best anyway. After about four to six months, you will find you are spending far less than you used to.
If you try to create a stringent budget and try to follow it from the outset, chances are you will fail. It takes time to adapt to a different lifestyle. Using this approach will also be gentler on your family, if you are the sole breadwinner.
5. Reduce Your Access to Credit for the First Three Months
If you have credit cards or lines of credit, call the bank and have your credit ceiling lowered to match your new income. Do not permit yourself to have a credit ceiling of two to four times your previous income – this has the potential to mire you in debt if you lose control.
It is also a good idea to close down some credit lines. Again, it takes time to adapt to a new, more deprived lifestyle. It is common for people who have taken drastic pay cuts to overspend in the first three months. Don’t allow yourself to start taking expensive loans, in order to maintain your lifestyle.
You can work your way back to your previous income level, but the way will be harder if you get enmeshed in debt.
6. Learn to Use Thrift, Wholesale, and Discount Sites
Auction sites are a lifesaver when you are on a budget, in terms of buying things for less or making money. Learn to use eBay or Carousell to make extra money off things at home instead of discarding them. You can also get better deals from wholesalers in Taoabo or Aliexpress, compared to retailers.
If you are shopping for groceries, check out online grocers to compare prices. Maximise savings at your favourite supermarket by using membership cards or cashback cards optimised for groceries, such as the OCBC NTUC Plus! Visa Credit Card.
7. Work to Stretch Your Income
Just scrimping and saving should not be your only method. Try to find alternative sources of income. If you had specialised qualifications before, you can try to put yourself in the market as a consultant – businesses may not be hiring, but they might be happy to give you a contract for one-time projects.
Remember that you don’t always need special skills to stretch your income. Sometimes it’s the simple things – like helping someone update their database – that sees all the demand.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.