Wall Street Bankers Gear Up for Pay Cuts. Should You?

What happened

Investment banks are cutting banker bonuses after what was a rough year for the industry. According to the Wall Street Journal, big bank revenues fell by over $50 billion last year, the largest year-over-year decline on record.

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

So what

If you're living paycheck to paycheck or struggling to save money in the face of skyrocketing bills, it may be hard to muster 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 we even consider their whopping bonuses.

But the wider question is whether what's happening in the financial sector could play out in other industries. In other words, whether your job could be next. Right now, the U.S job market remains relatively strong in spite of layoffs in the tech industry. But a few weeks ago PepsiCo announced it would lay off hundreds of workers at its U.S. headquarters, prompting fears that layoffs are spreading to new sectors.

Now what

There's a lot of uncertainty about whether we'll enter a recession next year, particularly whether high unemployment can be avoided. However, there's a chance that issues in the banking and tech sectors are only the start and we could see widespread layoffs in 2023. Although we don't know for sure, it is worth being prepared.

Take stock of your finances, particularly how much money you have in your bank account and what your monthly outgoings look like. If you were to lose your job, how would you cope financially? Do you have three to six months' worth of living expenses socked away in a savings account? If not, perhaps there are steps you can take today to build up your emergency fund.

If you're carrying high interest debt, look for ways to pay it off. In the worst case scenario that your income drops or you lose your job, those debt payments can take a big bite out of your budget and make it harder to keep your head above water. Debt paydown won't happen overnight, but the more progress you can make while the job market is relatively strong, the better.