New Year Resolutions: Can You Afford To Take A Pay-Cut?

February 1, 2015

Have you had the recurring resolution year-after-year to sort your finances out? And this year, you actually want to do it?

At enableMe, we find that February is our highest month during the year for new enquiries; because you’re settled back into the groove, the kids are back at school and you realise you’re not going to get in control of your finances unless you actually do something proactive.

Often at this time of year, people will either have changed job, or have a new job. Over the Christmas period, there’s a lot of reflection on where you’re going. We have a lot of people coming in at this time and they either want to change jobs which often can mean a pay-cut and they want to know is it even possible when to date they been spending everything that they earn and taking a pay-cut might seem a little bit problematic.

The other type of people we see at this time of year, are the type who want to become self-employed. They’ve had it with their employer; they’ve had it being someone else’s lackey and want to do it for themselves. Those are the people that are coming in at this time of year, wanting a plan. And it can be really disconcerting if you are in a relationship with someone and you know that you need as much money, you’re spending everything you earn so the idea of earning less is a little bit nerve-wracking yet if they really want to make this change, what are you to do to stop it? These are the kind of dynamics we are seeing as well, which can be interesting.

If you are spending everything as it is, how can you then make that shift and take a cut in income? Whether you’re becoming self-employed or whether you’re taking a cut in income, you’ve got to get your financial house in order. Whilst a lot of people spend everything they earn, they often spend it not because they have to, but because they either haven’t had a reason not to, or they are just frittering a lot of money or there are general inefficiencies which for most people, 10-15% of what they earn is just wastage, but they need a way to find that wastage, without creating friction in the relationship. Normally that gets too hard so people just keep spending.

If you are wanting to take a pay-cut, we’ve got to find the money that’s just getting lost in the system, otherwise you’re not going to sustain the pay-cut for very long and that’s where people often who are self-employed come unstuck. New Zealand’s the easiest place in the world to become self-employed, that’s just the rule. So there are no barriers to starting out yet the barrier becomes your own situation as to how long you can handle being self-employed.

Often when you’re self-employed, the money comes in but it’s getting spent faster than it’s getting earned, and so people end up draining the business or the spouse on the side starts to get nervous and puts pressure on you because money isn’t coming in at the rate that it should.

Ultimately, there’s just a whole lot of wasted energy and inefficiencies that just means people give up sooner than they should or they continue to waste money so they don’t have the opportunity to really realise their dream.

But if they had everything in order and if they were starting to work to a plan and if they knew how long they could give or how much money they could actually give to this project and there were some definite boundaries, it gives clarity for everyone.

Once I’ve determined how much they fritter, I will always ask my clients “how much do you think you fritter?” and maybe 10% get it right. A lot of them might say ‘I don’t know … a couple of $100 a month, but we’re actually talking $20,000 a year so there’s still a real disconnect between what they are spending, what actually makes them happy and what the overall effect is. And that’s when we need to start to understand.

Money does buy you happiness to an extent, of course it does. But dependence on it can buy misery because it means you have to stay in a situation you don’t like whether its work or relationship, because you haven’t sorted your stuff out.

If you are contemplating a career change, which may not be paying as much or you want to start working for yourself, you need to get a financial warrant of fitness and the team at enableMe can help.

Make 2015 a year that counts. We’re at the start; you don’t want to be having regrets at the end wishing you’d done something at the start.

 Listen to Hannah McQueen discussing this in more detail with Mark Sainsbury on RadioLive

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