When It Pays to Take a Pay Cut

Here's a piece from Money that offers ideas on when you may want to take a pay cut. They start with the obvious:

If you're just looking at raw numbers, there are at least two occasions when it might make sense to accept less pay for a new job:

• It's in an area where the cost of living is lower and your money will go farther
• It offers more than your current job in tangible benefits like health insurance, 401(k) matches, and paid time off.

The first point is a great one. $50,000 goes a lot farther in Omaha than it does in New York City.

The second point is "ok", but I'd argue that items like 401k, insurance, and other benefits are part of your overall compensation and it may not really be a pay cut. For instance, which is better, a $50,000 year job with no 401k benefits or a $47,000 a year job with a company that allows you to earn an extra $5,000 if you contribute to your 401k? It may not be a great example, but I think you get the point. You have to look at TOTAL COMPENSATION not just salary.

Now back to the article.

Money then offers additional situations when it might be worth taking a pay cut:

• You're young and inexperienced.
• You're not so young and feel stuck.
• Your list of unfulfilled desires is long.
• You need a break.

The article then offers some issues to consider before making a move to a lower-paying job:

• Figure out just how much of a pay cut you can afford.
• Consider what it's worth to you to give up the extra pay in your current job for the benefits of a new one. Maybe it's a friendlier environment, saner hours, or greater potential for promotion.
• Negotiate the move with your family. Hollander said. "If you have a green light from your spouse and kids, life is going to be much easier."

I've never taken a position where I've had to take a pay cut, but I've considered it. Issues like enjoyment of the work, working hours, working conditions, vacation time, and they like are all worth something (though they're worth different amounts to different people) and ones I've considered as I've selected my career path.

How about you? Anyone out there made the move to a lower-paying job? What was the result?

Comments

[Dan]

Early in 2004 I took a 25% paycut from a six-figure job to "get my life back." It was a hard decision to make over the long haul, but it gets down to what is important in your life. For me it was God & family. I carefully planned for it, but you can plan forever and one day I just had enough and made the jump.

Since the change, I found it was harder for me mentally to step down than I thought. I am okay with it now, but it was a struggle for some time as I was working for someone who basically had the job I had just left. We have since moved into a smaller home, about half the square footage actually. We could have still afforded the larger home but did not see it as a good use of resources.

I am now on a quest to arrive at "Financial Freedom" so I can do what I really want/need to do, using advice and insights from many avenues, including FMF.

Dan

[Carolyn]

I took a pay cut a year and a half ago. I had many reasons for doing this: better work environment, less corporate, more exciting projects, more ambitious coworkers. All of these things have made my new job better. I still don't quite make the salary that I left, but I'm within $500 of it now. I figure I could have made more and I would have gotten bigger raises at the other job, but I got to the point that I hated going, and didn't feel like I was working to my full potential. Now, I look forward to going to work and I really love the work I'm doing. My coworkers are all motivated to do their best and my bosses love what they do too. The overall environment is happier and more meaningful.
On a side note, the day I started my job, with a $2500 pay cut my husband got a very unexpected raise of $2800!

[Chrissy]

I just recently took at $10,000 paycut per year. I choose to forgo money and work for a company that is close to home, close to my children's daycare, flexible time off, more time off, and pays for employees to continue their education. The hours are the same but it so close to home that it will save me at least an hour in travel time each day, probably an hour and a half or so. I am very glad I made the switch.