Would you take a voluntary pay-cut in this economy?

No, please don't get me wrong; I'm very fortunate, and very grateful for everything that I have. I am just willing to serve as a case study for the purposes of this thread. But if I'm going to serve as a case study, I should probably add a couple of addendums: (1) I did go to school for a very long time, at VERY great expense; (2) I did struggle for a long time, because I loved my job more than I wanted a larger paycheck, and over time my salary gradually increased; and (3) my family income DID decrease by a lot more than that 30% threshold when my wife left her job and returned to school, so in a sense I've already gone through this once. Yes, I did take offense with the "I wouldn't wipe my ass for less than 100k" remark, because, again, I'm just willing to use myself as a case study, and you're basing that on a very small picture of me, and it isn't accurate at all. [I'm also assuming that the hypothetical person in my situation doesn't have any money saved for an emergency, but wants to continue to pay all his expenses through his take-home income]

All that said, many of my expenses relate to my home. Now, I carefully chose to purchase the house I did based on a thorough analysis of my income and expected expenses, and what qualities the house had to have (for instance, I work at home for the time being, so I needed a dedicated home office). I calculated exactly what I could afford, and I purchased an appropriate house. If only everyone else did this, we wouldn't be in this mortgage mess we're in right now. However, those expenses are now part of by basic cost structure, and are impossible to reduce. I pay a certain amount in property tax, home insurance, upkeep, utilities, etc., and there isn't much I can do about it. If I thought that there was a chance that my income would drop by 30% in the future, I would have certainly taken that into account and purchased a different house in a less expensive area. However, I can't simply trade my house for a smaller, less expensive one. That's just reality.

As for children, first, you can't do anything about the cost of daycare if your children are not school-age. however, in different parts of the country these costs can differ wildly. In some areas you couldn't find a day care for less than $18-20,000, but I'll bet it is a bit less than that in Oregon. Here in Florida, such expenses are at about the national average rate. There's no way I'd put my children in public school here, but that attitude would change once we move out of this state in a few years. It's unfair to them, and it is something I'd be willing to go into debt to avoid if I had to. [it's less than the cost of day care in suburban DC, though]. For one thing--and this is something for those without kids to think about--many states have a cut-off birth date for entering kindergarten. That is, if you are born after a certain date, you are ineligible to enter school. Many states have waiver provisions (if you can prove you're smart, you can still get in), but some, like Florida, refuse to make any exceptions. So, for example, my oldest daughter, who reads on a third-grade level, would be fingerpainting in kindergarten right now if she was in public school. It's something people don't think about, but if your child is born just a few weeks earlier, she can start school sooner, and you can avoid an entire year of child-care expenses. It's nothing to sneeze at. If my kids could be placed at an appropriate grade for them, I'd have no problem with public school (although I have some worries about how the sciences are taught here in Florida).

If I HAD to take a reduction in pay, I'd probably start by reducing my contributions to my retirement plan, if my employer allowed me to adjust the figure in the middle of the year. If you can only adjust the figure at the end of the year, then it would be quite unfair for an employer to allow you to lock yourself in and then tell you that you have to take a paycut. At some point, my wife would have to drop out and get a job.

Mook, you have some good suggestions, but again, the reality is that you can't simply put your house on the market right now and expect to sell it in a few weeks. And, of course, basic cost structure is very different in different parts of the country. Expenses like utilities and insurance vary greatly across the country.

But back to the example: Things would be different if the employees were given large raises over the past few years, though. Then obviously it shouldn't be as difficult for them to reduce their wages back to an earlier point. That's a piece of information we don't have. Also, if the employees already get paid less than their counterparts in the rest of the industry, it would be difficult as well.

Of course, a good chunk of that 30% reduction would be recovered through a reduction in taxes, so taht would have to be taken into account when figuring out what you could or couldn't afford.

 

I live cheaply in general (rent, don't buy new gadgets, don't decorate really, etc), although I do blow a lot of money travelling and partying. I'd probably cut that down if I lost 30%.