And of course, a pay cut can be a matter of your own choice: If you're in a two-income family and one spouse transitions to part-time work to take care of the kids, the decline you experience could easily be even steeper than our furloughed public workers face.
Naturally, those who have robust savings accounts and assets can handle such a pay cut more easily than those with fewer resources. But research from Bankrate.com shows that 27 percent of Americans have no emergency savings at all, and 76 percent don't have enough savings to cover their expenses for six months.
Even if you're in the well-prepared minority, you'll still need to make budget adjustments to accommodate your newly reduced income.
Crunching the Numbers
"When a reduction in income takes place, it's important to list out everywhere you regularly spend money each month and then determine if that spending item is a need or want," says Larry Rosenthal, a certified financial planner and president of Rosenthal Wealth Management Group in Manassas, Va. "Most people will be able to temporarily suspend some of the 'want' spending each month until their income bounces back."
"The average savings rate is 3.2 percent, although that's far less than the recommended minimum of 10 percent," says McClary. "A household earning $51,404 would be saving $137 per month at the average savings rate. They should continue to save at least that much even after a pay cut."
Rosenthal says federal employees, even if they decide to temporarily reduce their contributions to their retirement savings, must make sure they contribute at least 5 percent to their Thrift Savings Plan, because that's the amount the government matches.
"Start with discretionary variables and some essentials such as your cable TV, cellphone, Internet, magazine subscriptions, groceries, gasoline," says McClary. "It's possible, if you're not already cutting costs to the core, to make most of your cuts in these categories. Cable TV is prohibitively expensive for people on a shoestring budget, and there are plenty of other alternatives. A cable bundle, after removing all of the gimmicky sales promotions and temporary discounts, could run as much as $145 per month. Strip the cable and landline phone from that bundle, and Internet can be as low as $35 per month. You just saved $110 per month."
You can also save by switching your phone plans. Kimberly Foss, a certified financial planner, founder and president of Empyrion Wealth Management in Roseville, Calif., recommends disconnecting your landline.
"Moving all my phone use to my unlimited cellphone [plan] saved me an average of $67 per month, which comes to $804 a year in savings," says Foss. "If you work from home and need a landline, consider a VoIP or cable phone service, which are considerably less than traditional lines."
McClary says that, depending on your current cellphone contract, you may be able to shop around for a new plan.
"Cutting a contract plan with a top provider and going with a discount competitor could save you as much as 50 percent depending on your contract," says McClary. He recently had clients switch from two individual phone plans that cost a total of $160 a month to a pay-as-you-go, bundled family plan that cost $70.
You may also be able to save by shopping around for new car, or life or homeowners insurance, says Rosenthal. It's also possible to lower your car and homeowners insurance premiums by raising your deductibles, but be sure you have the cash on hand to pay that deductible in case you end up with a claim.
"You can save money on medical expenses by switching to a high-deductible health insurance plan," says Foss. "If you can put the savings from your health insurance premiums into a health savings account and use the HSA to pay for doctor bills, that helps reduce your monthly budget. Unlike a Flexible Savings Account, if you don't use all of the funds in the HSA at the end of the year, you don't lose it: It can stay there until retirement."
Other Items That Eat Up Your Budget
An obvious place to make some immediate changes to your bottom line is to reduce the number of meals and snacks you buy at restaurants, coffee shops, and convenience stores. Even if you spend as little as $5 per day, that comes to about $150 per month.
"Food accounts for about 12 percent of the average household budget, says McClary. "Let's say our average family is spending $514 per month, and let's figure that coupons are not utilized in this budget. The average coupon user saves 12 percent per year, so if we were to cut out the fancy brands and use coupons, we could save almost $62 each month."
Transportation costs, especially when gas prices are high, make up an average of 16 percent of household budgets, says McClary: The average family spends $685 per month.
"The range of savings here could vary significantly depending on your circumstances and the choices you make," says McClary. "Use gas discounts through grocery and retail reward programs, limit driving to necessary trips, and combine travel with others. If you're able to have one fewer trip to the gas station and a lower insurance premium, you can save about $100 monthly just for that."
If you're facing a 20 percent pay cut, hopefully you'll find a way to generate additional income for your household. Get a part-time job on your mandatory days off if you can, and ask family members to help by getting a job or doing side jobs for cash.
"Create income from a hobby or skill," suggests Anissa Schultz, director of education and enrollment at the Credit Advisors Foundation in Scottsdale, Ariz. "Use social media to advertise your skills or services like dog walking, babysitting, tutoring, carpentry, lawn mowing, or pool cleaning."
Until your income recovers, you'll need to aggressively follow a leaner spending plan.
Michele Lerner is a contributor to The Motley Fool.