#104: Should You Take a Pay Cut? Here Are the 4 Frameworks I Used to Decide

Hey all, it’s MMV.

BIG NEWS..

I decided to resign from my job.

Yes, that’s right. I made a post on this that got A LOT of traction.

Now, this wasn’t a rash decision. I had this offer in my inbox for 2 weeks now. But my mid-year review with my boss earlier this week was the push I needed to make my decision.

And if you’ve been following me before I got my current job, I took a 33% pay cut from my previous career in consulting for my current job. In return, I got much better work-life balance and job security (until Trump came into office).

This new job would actually be another pay cut for me (for only one year) and would eventually surpass my current income by year 3.

A lot of people are in a situation where they feel stuck in a stressful job that pays relatively well.

I’m here to tell you that there is another life out there for you!

So I’m going to share the 4 frameworks that went through my head to take this initial pay cut from my consulting career to government that you can use to decide for yourself if a career change makes sense.

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On paper, it was a dumb decision to go from my post-MBA job with a $200K total compensation to another for $133K salary and maybe a $2K bonus.

But the 2 years I worked at the firm was the most stressful 2-years I’ve had in a job. The excitement I had when I got the ideal MBA-exit job opportunity was completely gone within a few months.

I was constantly thinking about work (even on the weekends) and getting pressured by partners while juggling multiple projects so when I was laid off for not following return-to-office instructions (I had already moved to another state), I was RELIEVED.

So when I was looking for what my next chapter of life would be, I thought:

“What would my life look like if I just got a job that wasn’t the high-paying, high-stress type?

What if it was something I’d even enjoy?”

Financially, I could handle a pay cut. Mentally, I needed something less strenuous.

So how did I decide?

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Once you decide on another job, the first question you need to ask yourself is:

"Can I afford to take the pay cut?”

This is a simple math problem and if you’re on the fence about this decision, this can determine whether you take the job or not.

It’s either a yes or no.

First, determine what your typical monthly spend is. This includes rent/mortgage, car payments, groceries, transportation costs, utilities, etc. This calculation shouldn’t be your BEST budget months, but your average monthly spend.

Then use this calculator to determine what your paychecks will look like.

How do your paychecks go up against your monthly expenses? Is there enough of a “buffer”? Could you reduce your monthly expenses in the near future to increase the buffer?

If your new income doesn’t provide enough of a safeguard with your expenses, this is probably an easy decision to continue on until you find something else.

At the very least, determine what your target salary is.

For me, I had an emergency fund and enough investments to take a 33% pay cut and based on my normal spend, my minimum salary requirement was around $130,000 to stay comfortable.

Thankfully, I got a salary of $133,500 and a bonus of $26,000.

The next framework goes into the invisible costs…