“Air India employees face salary cut from April 2013”

“Infosys recasts staffers’ salary structure, cuts variable”

“Cadburys India cuts the pay of its managing director and other senior executives”

Such news has been making headlines of newspapers and magazines in 2013. The job market was almost stagnant last year in 2012 with very few fresh recruitments and negligible salary hikes even for top performers, apart from the pay cuts due to cost cutting measures by organizations because of the economic slowdown. Though the situation seems to have improved this year, employers are still adopting a very conservative and cautious approach when it comes to paying bonuses and increments.

Most MNCs and IT companies have a salary made of a basic fixed pay + a variable pay which is performance dependent. In the normal course, when the going is good, the variable pay is a multiple of the basic fixed, and hence we often tend to factor this in while calculating our take home salary and use this as a basis for planning our monthly outflows – lifestyle expenses, take loans with huge EMIs etc. And during scenarios like last year, when the take home monthly income reduces drastically due to a pay-cut or a lower variable pay, we often face situations where our expenses are in the danger of exceeding the income.

In such situations, it becomes important to re-look at your expenditures and segregate your needs from your wants.

Needs– These are things you cannot afford to, or should not compromise on.

Monthly living expenses– Expenses on basic necessities such as food, shelter, medicines, kids’ education, water and electricity bills etc.

Loan EMIs – If one has any outstanding loans and the huge EMIs are unaffordable with the revised salary, there are two options to reduce the loan burden. One – try part paying the loan, if you have some savings or an emergency fund as this would reduce the interest burden over the long term. The other option-if the first one is not feasible, is to try to switch to a bank which offers a lower rate. The last option is to increase the tenure of the loan. This would bring down the monthly commitment, but would prove costly over the long run.

Insurance expenses– Never default on your health insurance or life insurance premium. Some Insurance service providers have the facility of a “premium holiday”, or the facility not to pay premiums for a specified period, yet keep the policy alive, if your policy is an old one and you have been paying your premiums regularly till date.

Retirement funds– If you have subscribed to a pension plans or regularly contribute to a retirement savings fund, this is the last thing you should default on.

Wants- These are the lifestyle expenses – buying branded clothes and products, going on a holiday, eating out at expensive food joints etc. It may be difficult to entirely do away with this, but it can be largely cut down. If one sits down to calculate, he or she will be surprised to discover that this category accounts for a significant part of our monthly expenditure.