How to Survive a Pay Cut

It was 4:30 on a Friday, right before the usual end-of-workday routine at our house. I had wrapped up work a little early so Katelynn could have the home office to herself for her big meeting. I was halfway through the dishes, the kids running circles around me, when she came out much sooner than expected. I knew something was wrong right away. Her arms were crossed tightly across her chest, like she was trying to hold herself together.

“I got laid off,” she said.

In that moment, time froze. I hugged her as the swirl of emotions hit us—fear, shock, embarrassment. Her paycheck had been the lion’s share of our income. 

And yet, under the weight of it all, I knew: we didn’t have to worry about money. 

I had been using YNAB at that point for the better part of a decade. This new journey of job loss would still be hard—and emotional—but I had the skills and the tools to make a plan to get us through this. 

Does this story sound familiar to you? Maybe you’re facing a sudden job loss or maybe you’re facing a pay cut for other reasons: a new baby, new caretaking responsibilities, a health crisis, or big life choices mean you’re facing a major reduction in income. Whatever the case, you are not alone. The emotions—fear, bewilderment, even anger—are real and valid. But you can get through this transition. Step by step, choice by choice, you can build a plan that brings clarity in the storm.

I’m not saying it won’t be hard! It will be. But you’ll come out stronger, because you built a plan, just like I knew I would when we were hugging it out in the kitchen on that really crappy day. 

For me, it started by creating what I call our slimmed-down spending plan—a bare-bones version of our finances that showed us exactly how long we could last on what we had. Let me show you how I worked through it, one step at a time, and how you can too.

Step one: List every expense (without cutting yet).

The very first step I took was to sit down and write out every single thing we spent money on. Not just the obvious stuff like the mortgage and utilities, but also seasonal and annual costs that can sneak up on you. Soccer fees. Holiday gifts. Car insurance renewals. When you’re facing a pay cut, surprises are the enemy, so I wanted it all in front of me.

Thanks to years of using YNAB—and *pats self on the back* sticking with the method—I already had a clear list of my expenses mapped out as categories in my plan. But reviewing it in the new context of this moment was very powerful. And, I promise, if you’ve never made a list like this, just taking this one step will make you feel better. You’ll be more organized, more on top of things. Sometimes, in a moment like this, it feels great just to do something, you know?

But I didn’t stop there. Once I had the list, I sorted each expense into three buckets: Non-negotiable needs (things like housing and electricity that had to be paid), negotiable needs (groceries, phone, internet—expenses we needed, but could adjust), and optional expenses (vacations, streaming services, dining out—anything that I could cut out completely or reduce very significantly). That act of organizing alone was calming. For the first time since hearing “I got laid off,” I felt like I could see the shape of the problem.

YNAB will be a great tool for this step, and you can start a plan for free for 34 days. There, you can list out all your expenses and get a total amount of what it costs to be you. Even if you decide not to continue with YNAB for now, try it for this step. You’ll feel money worry go out the window, I promise!

Step two: Slim it down to create your emergency plan.

Once the list was complete, I got to work on building our emergency plan. Optional expenses were the first to go. Poof!

I cut back on fun spending, streaming services, gym memberships, and giving. I even paused retirement contributions and other savings goals. It was tough at first—canceling things that brought joy—but it was also freeing. We weren’t saying goodbye forever, just pressing pause until we had more stability.

Next, we looked at negotiable categories. Like, we absolutely stared them down and interrogated every single expense. Our groceries shifted more toward staples. Internet speeds dropped a notch, and our cell phone plan went to a cheaper tier. Each change gave us just a little more breathing room, and added up to significant savings.

Even with non-negotiables, we challenged ourselves. Did we need both cars on the road right now? Could we re-negotiate loan payments? If this was going to be a long-term change should we even consider moving to a different home? Asking those questions didn’t always lead to cuts, but the conversations themselves reminded us we had options even in unexpected places. 

At the end of the exercise, we had created our slimmed-down spending plan—a survival strategy we could lean on until things improved. I added everything up, including monthly savings for non-monthly expenses, and got one big number, the total cost to be me every month on this slimmed-down plan. 

‍Having a hard time determining wants versus needs? Here are 20 money questions to ask yourself after a big life change.

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Step three: Find your runway (compare with income and savings).

Then came the moment of truth: lining up that slimmed-down plan with what we actually had. I added up every dollar in checking, savings, our emergency fund and Katelynn’s severance. I also considered my income and the amount we could expect from unemployment insurance. Then I compared it to our minimum monthly number. The math was simple: total resources divided by monthly needs minus monthly income = our runway—the number of months we could last without having to go into debt. 

Seeing that number in black and white was both sobering and reassuring. Sobering, because it showed us exactly how limited our time was if no new income came in. Reassuring, because uncertainty had been replaced with clarity. We no longer had to wonder and worry—we knew exactly what we were working with.

For me, the news was overall more reassuring. Because we’d been following the YNAB method for so long, we had gotten good with money and actually had a lot of cash on hand. We were a month ahead, had a job-loss fund, savings for non-monthly expenses, and we happened to have been saving to pay for a renovation in cash (that goal was put on ice real quick!). So we could survive on our slimmed-down plan for a pretty long time. And that helped Katelynn make more considered choices in her job search.

Following this process might show you that the situation isn’t as bad as you thought. It might show you that the circumstances are quite rough indeed. But the important thing is to face reality so you can act on real information rather than fear. 

And here’s where I want to pause and be very gentle: sometimes, the runway isn’t long enough. That may be tough to see, but it’s okay. If you’re facing a temporary job loss or if it will take some time to make some more major life changes, you might need to lean on credit cards or other debt in the short term. That doesn’t mean you failed. It means you’re human, facing real life. The important thing is that by creating a slimmed-down plan, you’ve already minimized how much debt you’ll need and given yourself a faster path to recovery when income returns.

Step four: Track every dollar.

In the weeks after Katelynn’s layoff, tracking every penny felt even more critical. I tracked all our spending to make sure it lined up with our plan and to make sure our plan was realistic. And this process didn’t bring guilt as so many expect. Instead, it brought badly-needed clarity.

You see, fear thrives in uncertainty. When your brain says, “The money is vanishing,” it’s terrifying. But when the numbers tell you, “Here’s where every dollar went, here’s how much is left, and here’s how long it will last,” that fear loses its grip.

I used YNAB to do the tracking, but the tool matters less than the habit. Whether you use an app, a spreadsheet, or even pen and paper, the act of noticing where money goes keeps you grounded. It turns a free-floating sense of worry into a concrete plan you can manage.

That awareness also gave us small victories. Every time we stuck to our slimmed-down plan for another week, it felt like a win. When we didn’t, we knew exactly how we could adjust. Each little choice added up to proof that we were moving forward, even in a tough season.

Step five: Adjust your plan.

Over time, we discovered that the slimmed-down plan wasn’t a one-and-done exercise—it was something we adjusted and reshaped as life unfolded. This was something I was used to, because flexibility is absolutely core to the YNAB method I had been following for a decade. Every time I made a change, I did so with my eyes wide open, always knowing the tradeoffs I was making. That felt empowering. 

A few weeks into the plan, we even carved out a larger chunk for fun money. In truth, the first emergency plan I made was a little draconian. As I tracked and lived that plan, I found there was room to loosen up a little. Even a small amount of fun money helped us avoid the burnout of beans-and-rice living. It gave us something to look forward to, a reminder that joy still had a place in our lives.

Depending on your situation, you may have a similar experience. The important thing is to adjust and consider your feelings as well against the numbers.

If you need ideas for using money to bring some small joys to your life, look no further than our Happiness categories template.

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This isn’t forever—and you may come out stronger.

That day in the kitchen—the stunned look on Katelynn’s face, her arms wrapped around herself—is burned into my memory. But equally vivid is the feeling of quiet confidence that came after we built our plan. It didn’t erase the fear, but it gave us something stronger to hold onto.

And, looking back, I’m actually grateful we went through that challenge. Many YNABers, myself included, find that they actually come out stronger after a tough financial season: more resilient, more confident, more aligned with what matters most.

A slimmed-down spending plan is temporary. But the skills you gain in creating one—prioritizing, tracking, adjusting—are permanent. And when income flows again or when you land in a more stable place, you carry those skills forward. I’m happy to tell you Katelynn was able to find a new job in only a few months. She liked the new job even more than the old one!

So when I think back to that hug in the kitchen, I don’t just remember the fear. I remember that together, we weren’t just holding each other up—we were holding onto hope, clarity, and a way forward. And that made all the difference.

If you’re walking through a similar situation, I’d encourage you to give YNAB a try—it’s free for 34 days! Build your own slimmed-down spending plan and never worry about money again.