Wall Street bankers are bracing for pay cuts. You must?

What happened

Investment banks are cutting bankers’ bonuses after a tough year for the industry. According to the Wall Street Journal, earnings at big banks fell by more than $50 billion last year, the biggest year-over-year decline on record.

As a result, leading firms such as JPMorgan Chase, Bank of America, Citigroup, Jefferies Financial and Goldman Sachs will all cut annual bonus payments by up to 45%. Furthermore, the article warns that some investment banks may also lay off people next year.

And what

If you’re living paycheck to paycheck or struggling to save money in the face of skyrocketing bills, it can be hard to have much sympathy for bankers facing pay cuts. After all, top investment bankers can take home hundreds of thousands or even millions of dollars a year, and that’s before considering their huge bonuses.

But the broader question is whether what happens in the financial sector can happen in other sectors. In other words, could your job be next? At the moment, the US labor market remains relatively strong despite layoffs in the tech sector. But a few weeks ago, PepsiCo announced it would lay off hundreds of workers at its US headquarters, sparking fears that the cuts were spreading to new areas.

What now

There is a lot of uncertainty about whether we will enter a recession next year, particularly whether high unemployment can be avoided. However, there is a possibility that the problems in the banking and technology sectors are just the beginning, and we could see widespread layoffs in 2023. While we don’t know for sure, it’s worth preparing.

Take stock of your finances, specifically how much money you have in your bank account and what your monthly outgoings are. If you lost your job, how would you cope financially? Do you have three to six months of living expenses sitting in a savings account? If not, perhaps there are steps you can take today to build your emergency fund.

If you are carrying high interest debt, look for ways to pay it off. In the worst-case scenario, when your income drops or you lose your job, those debt payments can take a big bite out of your budget and make it even harder to stay afloat. Paying off debt won’t happen overnight, but the more progress you can make while the job market is relatively strong, the better.