Should you be taking a new job with a pay cut? Discover our tips that help you decide

When changing jobs, the focus is on several things like upward mobility, responsibility, and company culture (and don't forget vacation, benefits, and stock options). But how much you'll be paid is usually front-of-mind when weighing a job change. Is your salary the most important aspect when pondering a new job? What about when taking a new job with a pay cut?

In this article, we’ll discuss:

• What is considered a pay cut?

• When should you consider a pay cut? 

• Is it worth it to take a pay cut to do what you love?

• 5 tips to prepare for a pay cut

What is considered a pay cut?

Before you decide whether you should accept a job offer with lower pay, define the parameters. A pay cut, in general, is pretty much what it sounds like—the act of reducing a salary. It may also involve a reduction in benefits or hours as well.

When should you consider a pay cut?

Most of the time we think of career progression as including an increase in salary and benefits. But, depending on your goals, that might not always be the case. 

Here are five circumstances where you might put salary last when taking a new job with a pay cut:

1. You feel work-life balance is more important

If you've been in the 9-5 grind for a while, you might look around one day and wonder, "Is this all there is?" During the COVID pandemic, many people decided that they were willing to give up a certain amount of salary in favor of less commuting, fewer hours, or working remotely (even just some of the time). Whether it’s for family reasons, personal fulfillment, or simply having more time for yourself, if you’re looking to change your work-life balance, a pay cut may be worth it.

2. When it’s actually a wash

Taking a pay cut doesn't always mean a reduction in income. Consider the money spent on commuting, work clothing, health conditions related to your job, or a lower cost of living (if the new job is in a different city). You may be able to reprioritize other expenditures in your budget so that the pay cut isn’t too much of a sacrifice. Or, maybe the salary is less, but the benefits are better. When you take all of these things into consideration, your pocketbook might not take much of a hit.

3. If you’re making a complete career change

If you’re doing a 180-degree turn in your career, it may mean starting all over again with an entry-level salary. But if you’re unhappy in your current career and are committed to doing something new, it might be worth it to take a pay cut until you gain some experience in your new field. 

4. When the new job is too good to pass up

Every so often a job opportunity presents itself and it's exactly what you're looking for. If that happens but the pay is less than what you're currently earning, it might still be worth it. Perhaps it's with a company you've always wanted to work for. Or, you've discovered that your current role doesn't have the upward mobility you were hoping for, but there are great opportunities at a new company. If you're presented with a perfect job, except for the pay, it might be worth it if you can make it work for you.

5. If you need to get out of a toxic work environment

If you’re in a bad situation at work, you may be compelled to leave no matter what. You need to take into consideration the effects on your health, personal life, family, and mental well-being. Hopefully, you’ll never face this situation, but if you do, taking a job with a pay cut at a better company will probably offset the stress of a bad job. 

Is it worth it to take a pay cut to do what you love?

It really depends on your current financial circumstances. You’ll need to take a long, hard look at your budget and expenses and decide if you can manage for some time on a smaller salary. For example, if you make $75,000 at your current job and take a 20 percent pay cut, that means $1,250 less (before taxes) in your pocket every month, and $15,000 less per year. Over 10 years, that’s $150,000 less! 

You’ll also have to save enough for your retirement. According to Nationwide, people who are currently in the workforce “underestimate the percentage of income they’ll spend on basic living expenses in retirement.” They’re expecting to spend 42% of their income on food, housing, and other basic expenses as they might do now, not taking into account most retirees actually spend closer to 53% on those same expenses.

But if you’ve looked at your finances and decided that you can take a reduction in salary without a significant loss in quality of life, it might be worth it. If it will help your career and provide you with better mental/physical health, it may be the right move.

5 Tips to prepare for a pay cut

No matter the size or duration of your pay cut, you have to make a few adjustments to your lifestyle. Even if the salary reduction for your new job is minimal, your budget will change. 

Here are five tips to help you manage when taking a new job with a pay cut:

1. Take a good look at your finances to get a firm grasp on where your money goes. This should include any job-related expenses that you may no longer have. Then, adjust your monthly budget (or create one from scratch) and stick to it!

2. Check for areas in which you can downsize, even if it means moving to a new residence or holding on to your old car. Don’t ignore your retirement plans, which would be cutting off your nose to spite your face, as the old adage goes. You may find that your "miscellaneous" expenses are reduced when you're not trying to distract yourself from a stressful, unfulfilling job.

3. Work with a financial planner to keep your budget effective.

4. If you can, negotiate your benefits package with the new employer. This might take the form of extra vacation time, hybrid work, or tuition reimbursement so you can keep your skills up to date (or develop new ones). This may mitigate the effects of lower take-home pay.

5. Don’t forget to save! While this might be the first thing to go when you’re taking a pay cut, you need to put some money (even just a small amount) into a savings account every month so you can build up an emergency fund.

Unsure of how much your skills are worth in today’s market? With Career.io’s Salary Analyzer tool, you’ll get a clear picture of your value by using real-world salary data and comparative analysis to give you the confidence that you’re making the right decision.

Key takeaways

1. A pay cut is the act of reducing a salary and may also involve a reduction in benefits or hours as well.

2. You might consider a pay cut to improve your work-life balance, accept a great job opportunity, or when you’re making a career change.

3. Examine your finances closely to ensure you can survive on a smaller salary and make budget adjustments where necessary.