How to cope with a pay cut

He had a famous principle: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six, result misery."

Well, we are all Micawbers now. The family finances of what seems like the entire nation are as precarious as a sandcastle, as we all scramble to keep on top of our expenses in the face of falling incomes.

Millions of people are just a red letter or two away from penury. Result, as Micawber would say, misery.

Or is it? Actually, there is a perverse if gritty pleasure to be gained from thriftiness.

For the first time in a generation there is no need to be embarrassed when you think something is too expensive.

Perhaps the workers of 2009 should be called Generation M, for Micawber. The original Generations X and Y were slackers, archetypes of those far-off giddy days, the Nineties, when Clinton and Blair were in charge and the dotcom boom was in full swing.

In those days, people were voluntarily downshifting and giving up some of their incomes in the hope of doing something "fulfilling".

But for Generation Micawber, there is nothing voluntary about it. On the contrary, we are confronted with a fight to make ends meet.

What has gone wrong is that for the first time since the Thirties we actually face falling incomes.

This has undermined the central premise of the modern workplace, indeed of capitalism itself, that if you work hard and obey the rules, your income generally rises over time.

Now, the only people to receive pay rises are members of the RMT while the CBI warned in March that the overwhelming majority of its members would freeze wages this year.

British Airways cabin crew are the latest to be hit. Last week, Willie Walsh, the desperate-looking chief executive, wrote to the 41,000 employees, asking them to work for up to four weeks unpaid.

Mr Walsh has set an example by forgoing his salary for July, about £60,000.

It is an offer they cannot refuse. For it comes with the implied threat of more job losses unless volunteers come forward.

At the other end of the spectrum, in the City, bonuses are down dramatically, if they exist at all. Even the stars of the BBC have been told they face pay cuts of up to 40 per cent.

So what do you do when your income falls, even as inflation continues to bubble away? Pretty well everyone goes through the same ritual.

They sit around the kitchen table, with bills strewn around them, and go on a ruthless purge of direct debits.

Organic vegetables delivered in a nice box? How ridiculous. Sky subscription? We can do without that. School fees? Ask for a bursary. Heating? Put on a jumper. The au pair? She'll have to return to Poland.

After the direct-debit purge, there is the inevitable search for more income. We are not just talking cutting out £10-off-at-Waitrose tokens from the papers, though those come in handy, but freelancing or consulting on the side.

In fact, hardly anybody accepts a job these days without writing into their contract the right to pursue external interests of one kind or another.

If those two strategies don't work, there is the nuclear option: get made redundant.

This is a desperate measure but it might at least allow you to cobble together a higher income from a mixture of sources.

Something similar worked for Micawber - he jacked everything in in London and emigrated to Australia, where he made his fortune.