Tuesday, September 30, 2008

What would you do if your paycheck was cut 50%

Yesterday the news was abuzz with an announcement that Sun Country employees face a temporary 50% paycut. A few of the local news story links - here, here and here.

It's a local company so I don't know if the story has hit the national news or not, but think about it. Fifty percent!

Granted it's temporary and it's a way to keep your job. But could you survive on a 50% paycut for the next three months? I personally know many families that simply could not do it. They are barely making ends meet as it is.

We've cut back on spending in my household, as I know many of you have, including cutting back on food, trips to run errands and almost eliminating purchases for my sewing hobby. But in some of my cutbacks almost appear frivolous when I think about the sacrifices these employees and their families will be making.

So tell me, what would you do if you found out today that in one week your paycheck would be reduced by 50%? Pin It


  1. I remember when we were advised by our old-fashioned parents to laways be prepared for the "rainy day". Jobs weren't guaranteed and unexpected expenses were just around the corner. I think my generation (I'm about 50), more than any other snubbed this advice. If we lived like our parents and saved a little instead of spending more than every cent we made, we would all be better prepared for times like this.

    My Mom is retired and living on a small income. But her house and car are paid for. Her retirement account is suffering but, fortunately, she can leave that money alone for the time being because she has taught herself to live on her social security. She can afford today to do more, but she chooses not to.

    We have got to get ourselves out of the mindset that we "deserve" a closet of shoes, 4 TVs, a new car ever few years and a nice vacation every year. We owe ourselves some restraint. It's hard to hear that when we are at a time when the crisis is here and we are not prepared but I think that living below your means is the only successful long term strategy. Maybe we will all learn from this. It's not the government's fault. It's our fault for expecting a government made up of us to behave better than us. They don't and they can't. We elected what we deserve - democrats and republicans.

    The people I feel bad for are the ones who really have lived prudently and they will be punished for the actions of those that didn't.

    I'm lucky. My husband and I gave up vacations and new cars to get our house paid off in 10 years. It's amazing what a good night sleep can be gained when the burden of a mortgage is lifted. When we were house shopping I called the mortgage company to see what kind of approval we could get. When I was told the amount of mortgage we could be given I laughed out loud. There was no way we could afford a mortgage that large. I knew there was trouble on the horizon then and that was 15 years ago.

    That didn't really answer your question but it's how I have been thinking about the whole situation lately.

  2. Wow - Vicki what a wonderfully thoughtful answer. I have to admit that I would be able to pay the bare necessities, we wouldn't lose our place to live and I would have to cut back on some extraneous things but I am one of those who also currently lives below her means. My savings isn't great right now because I am a single parent footing a college education bill and we would have to live very carefully but my family would make it.

    This entire situation is really causing me to think about saving way more than I do especially since being here in NYC I'm at the epicenter of the meltdown.

    But here is one more thought to throw into the conversation...our economy is now driven by what we Americans spend...so if we stop spending without actually making anything anymore...what drives our economy?

    As plant after plant was closed and jobs were shipped overseas we became a service oriented nation...driven by our need to consume...we are actually the biggest consumers in the world...and our ability to continue to consume or NOT WILL affect the global economy!

    So how would you balance the need to continue to grow the economy versus the need to have more saved and to live within our means? Yes, see how involved this discussion is?

    And can I just throw one more log onto the fire? The bailout bill that quite a few Americans are opposing - is ensuring that thousands of regular Americans like you and me will not lose their jobs. Not the CEOs with the big bonuses or upper management - but the mailroom guy, the IT tech, the secretary and analyst - all the lower level people who make up the majority of the workers...no bailout bill...higher unemployment, more homes lost to foreclosure...no more economic growth.

    Oh what a tangled web our government has woven with their deregulation policies...

  3. All good points Carolyn. The economy is a system and the weak parts are going to fail from time to time. Yes, spending is the fuel but over spending builds a weak joint and that joint was going to fail at some point. I don't really have an answer but I don't think there is a magic pill the get the economy booming again.

    I'm not happy with the bailout but I agree, it's not about protecting the executives. That silly sound bite about regulating exec pay is such a tiny nit of the total package that it's only a cute sound bite and not any sort of real protection. The package saves the people employed in those firms.

    As for deregulation. I think there's more to it than that. This problem did not happen in just the last 8 years. Part of this also harkens back to regulations initiated by this very same congress - they are the ones that enacted legislation that required banks to offer these high risk mortgages to people who could not afford to pay and they fined banks that did not comply. That particular legislation was enacted and further strengthened by laws enacted in the 1990's. Everybody gets a piece of this blame pie. Democrats need to get over their hatred of the President - it's clouding their judgement at a time when they have an opportunity to show some real leadership. This President's term is almost over - move on and get over it. Republicans need to get over themselves and stand on their principles. They all need to remember that they represent someone and it's not themselves. None of this would get the level of attention if so many of them were not up for reelection! That's the really sad part. This bill would have been moved through congress on a rocket any other year.

    I believe that Congress has more impact on economic issues than the President - that's just my opinion but they are the ones that pass these convoluted laws. I place 99% of the blame there and much less on the last 2 Presidents.

    Sorry to hijack your post, Sharon. But it's just too nice to have the opportunity to have a sensible discussion on the topic!

  4. Please hijack away - if I find any comments offensive I'll delete them.

    In the meantime, I want to hear what everyone thinks.

    I'll be back to post my thoughts when I have a bit more time.
    - Sharon

  5. Well, I'll present the side of someone who probably wouldn't make it on 50%.
    I don't have enough money saved to make it through 3 months of half pay. One paycheck yes, maybe even two. Three would hurt... A LOT. We'd be trying to sell a lot of our "luxury" posessions. And then... we'd be in big trouble.
    My husband and I are both in relativley low paying professions. Not minimum wage service, but still... I make less than any other member of my family (except my sister who works as a cashier in a parking garage).
    And our "overspending" is perahps alittle different form most. I don't have a lot of clothes, and have less than half a dozen shoes. Our TV is a freebie from a friend who moved (and it's only about a 16" screen). My car is 10 years old (DH's is 9). And the only vacations we get are going to visit family at Christmas.
    Most of our extra spending is on eating out (we're terrible with that!), and our hobbies. I buy yarn and fabric, DH buys canoeing and camping gear. That's the kind of stuff we'd be selling at the end of the first month.
    So if that paycut situation were to happen what would we do...? I guess we'd search for a second job of some kind. Perhaps a minimum wage service industry position... like cashier, fast food, store clerk...? Of course in a town where a whole company's work force is undergoing this... I'll bet those jobs would be both in high demand and feeling the customer shortage.

    "It's our fault for expecting a government made up of us to behave better than us." Vicki... I like this sentence.

  6. Good question, and it is something I actually do think about quite a bit, since I've been in that situation more than once. Comes with the territory, I suppose, since in teaching music lessons, there's a good bit of turnover in students. And I actually am sort of going to be in that situation at the beginning of next year, at least temporarily. My second part-time job is at a garden center, and it will be closed for January and February. Maybe until mid-March, I don't know.

    So I'm trying to plan ahead. Since I'm still living with my parents, I won't have to worry about losing a place to live, or starving. But I also know that those couple of months are going to be very tight budget-wise, since I'll have a couple things like my car insurance bill and my annual eye doctor exam/year's supply of contacts coming due. (And no, switching to glasses isn't an option! I really can't see as well with them!) Plus I'm in a wedding in March, and will have to deal with some expenses due to that. So I'm trying to make more gifts this year rather than buying them, particularly using stuff I have. I'm focusing more on using up craft supplies that I have instead of buying new ones whenever possible. If I have to, I can drop my subscriptions to Netflix and eMusic for a couple of months. I don't have any credit card debt because I've always paid off the full amount each month, and if I absolutely have to, I can skip my car payment for a month because I've been paying extra and therefore have a bit of a cushion on the interest. (But I'd rather not, because I want it paid off! I only have about 6 or 7 more months on it!) If all else fails, I do have a good cushion in both my checking and my savings accounts--while I don't pay quite as close attention as I probably should, I always have been pretty good at saving more than I spend, generally speaking. Guess having a budget-conscious accountant type for a dad can have its advantages...got it drilled into my head from an early age!

  7. Wow, that would be very hard to do. I am with Vicki our home is paid for so that would be a relief. I feel my paycheck is cut in half right now- gas, food, electricity, really everything is just so high. Going to the grocery store is painful, not to mention the gas pump!

    I would probably take our cable down to the bare minimum, not eat out at all, be even more careful at the grocery store and cut way back with gifts. Right now we have 2 in college and a wedding next summer, so expenses are pretty high but we manage to save each month. My father was/is a big saver, wish more would have rubbed off on me.

    Carolyn is so right in our economy is driven by consumerism. I think about that with my spending. Do I want to buy that pattern at Joann's or Wal-Mart or do I want to buy that Hot Pattern from a small independent company? Simplicity is still privately owned and I like to buy their patterns for that reason. With money tight, I am still going to try to support the small business owner and my small town.

    We are trying to express to our adult daughters (almost 19 and 21) how important it is too cut back, realize things are tight and to save when possible. Oldest daughter graduates in December, civil engineering, and I know she is a bit nervous about finding a job. She has 5 interviews this week and has an excellent resume, so she will be fine. We just told her not to turn down a job!

    Sharon, thanks for posting such a good question. In fact, I have been working on a podcast for budget sewing, sewing during tough economic times.

  8. Gosh, difficult answer. My DH and I would survive. It would be difficult, yet we have enough resources to pay off/down most all of our debts. Our vehicles are just about paid for, thank goodness. We would not eat out and have already cut back on that luxury. We stay home quite a bit now, don't go to movies, I can watch movies from the luxury of my lazyboy chair and eat popcorn at a greatly reduced price. But I can do all of this with salary I have now, reducing 50% would be difficult but I am a survivor and would find a way to make it.

    I am intrigued by Carolyn's comments about manufacturing and service industry. That is the part that concerns me the most about our country. We somehow need to bring back some of the manufacturing we use to do. I work with the disabled population and we use to do a lot of work for companies that were manufacturing related. Most of that has gone away and many of our disabled can not work in the service industry but can do repetitive, sedantary work and that is the forgotten population in our country.

    But that is another story for another day.

    The great thing for me and all of us is that we can sew and perhaps our stash would decline but we would have nice clothes to wear!

  9. May I seize the podium for a moment? Vicki brought up a huge item - her house is paid for.

    That makes everything else so much more manageable. Instead of rent or mortgage payments, they just have to pay property taxes and normal maintenance. That creates a HUGE cushion (generally 30% of gross income).

    Debt is something people should avoid, except for important items (home, car) that may be too big to pull out of savings.

    So, make paying off debt your biggest priority. If your debt is impossible, talk to your creditors to work out an arrangement. (I'm a retired banker and I know this story from both sides of the desk).

    I promise you, you'll sleep better!

  10. 1. get rid of the cable tv
    2. get rid of the landline telephone, not cell phones.
    3. get rid of home internet access
    4. Lots of time spent cooking from scratch and eating PB&J.
    5. No eating out. Period.
    6. Eliminating all unnecessary grocery items, like coffee, snacks, etc.
    Oh I could go on and on. We'd make it though.

  11. I'd stop buying gifts for the inlaws!

  12. The financial meltdown is a combination of the "regular" people, Government. and Corporate America. How did it ever make sense to give someone a mortgage when that person simply said "I can make this much of a payment"? C'mon...how stupid was that concept? Not only are you stuck with a mortgage that you had to have known was going to adjust (if you took an adjustable loan), but you have taxes and upkeep. These are things people were forgetting about during the housing boom. So now the bubble has burst and jobs are being lost, etc. This saddens me, and it also urks me that no one wants to accept their part of the responsibility. Homeowners being forced out of their homes by foreclosure are trashing the places. What purpose does that serve? Greedy lenders, greedy home buyers and then when things don't turn out the way you want, you simply destroy a property?

    Could I live on 50% less than I make now? Yes, it would be difficult, but I lived on way less when I was a single mom, than I am making now. If my salary were cut now, I would give up my cell phone but I would keep my land line. Why? Back in the day, people did not have to be connected 24/7, and cell phones are not cheap. My husband is comfortable knowing I have one in the event of any emergency, but we have already cut way back on the plan minutes and extra services.

    I recently gave up my daily latte purchases because the cost adds up, and the purchase was really just an excuse to get out of the office for 15 minutes "while I run over to the coffee shop". It's a want, not a need. When I was a single parent, I would buy the least expensive coffee I could find, and brew a pot in the morning so I could take a thermos to work with me. My kids and I often just ate rice, and it was an awesome day when we could enjoy a nice cut of meat to go with that rice. And when veggies were in season, that is when we really splurged! So basically, you learn to live within your means and sometimes it hurts to pull in the purse strings, but you do it.

    My folks have to work paper routes during the time of their life that they should be able to sit back and relax. Their house is falling apart and they do not have enough extra to fix everything that needs to be fixed. Where do they fall in the government bailout!

    Our society takes way too much for granted and people want to make an "impression" on their neighbors or friends, so they buy things that put them into debt. My 27" old model TV works just as well as your huge screen TV, and mine is more than paid for! I own things, don't get me wrong. But as I get older, I realize it's just a lot of stuff that gets dragged around in each move I make.

    We've chosen not to take on a mortgage, because for us it is easier to be able to call the rental management company and have them send someone over to fix something that is broken, rather than trying to come up with thousands of extra dollars for house repairs. We own one car and manage to carpool, even though we work at different companies. We have an older computer, that is slower than mud, but still works, so we just deal with it.

    My Grandma used to say "wish in one hand and spit in the other, and see which one fills up faster". We can wish for things to get better at the snap of a finger, but the reality is we're going to be dealing with some tough times for a while and people have to own up to their part in this mess.

    Executive level people at my current place of employment have lived high off the hog for years, and now are being told to pull in their travel expenses. They are not happy, but to ride the wave and keep the company above water, they have to make some sacrifices. Financially my employer is stable, but I would imagine there could be some jobs cut if the financial crisis continues for a long time.

    Basically life is about the ups and the downs and we can learn by the mistakes made over the years, or we can continue to repeat them. I agree with Vicki when she said "we owe ourselves some restraint".



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