People change careers between three and seven times in a lifetime on average, making it likely you could experience a major career move someday soon. Anytime you prepare for a fresh chapter, it can be exciting, exhilarating, and of course, a little nerve-wracking too. (1)
But before turning in your two weeks and moving on to bigger and better things, it’s important to review your financial landscape and make the necessary moves to prepare yourself for the changes to come.
Here are a few simple steps for preparing your finances for this next phase of your professional life.
Fill Your Emergency Fund
Everyone should have an emergency fund that’s able to cover unexpected expenses like job loss, surprise medical bills, or unexpected home repairs. How much you choose to keep in your emergency fund is up to you, but the general rule of thumb is to stash aside enough to cover between three and six months’ worth of expenses.
Though, under certain circumstances, you may feel more comfortable with closer to a year’s worth saved up. This may be the case if:
- You’re the family’s sole provider
- You have multiple dependents who rely on your income (spouse, children, older adults, etc.)
- You work in a relatively volatile industry
If you have a solid emergency fund that you feel comfortable living off of for an extended period of time, then you may be ready to make a career change. Otherwise, take some time (if you’re able) to grow your savings or transfer some of your less liquid assets into more easily accessible funds if necessary.
Consider Other Costs
Changing careers may incur some unexpected costs.
Depending on your situation, these could include:
- Relocating to a new city (and possibly adjusting to a higher cost of living)
- Professional equipment, supplies, or wardrobe
- Education, training, or certifications
- Professional insurance (for industries with liability concerns, like doctors, contractors, architects, etc.)
If you received benefits through your previous employer, such as health insurance, you’ll also need to consider how you’ll pay for continued coverage. If you’re unable to join a spouse’s health insurance plan, for example, you can continue your previous plan via COBRA (but the monthly premiums will be high). Or, you may be able to join a marketplace plan, though the premiums may still be higher since your employer is no longer subsidizing the cost.
Consider what other benefits or coverage your employer offered that you may need to address after leaving—401(k), disability insurance, life insurance, stipends, etc.
Look for Tax Opportunities
Anytime there’s a change to your work status, income, or family, it’s worth considering how your taxes may be impacted. If you take time off between jobs during this career pivot, for example, your income for the year may be lower than usual. Or, your career change might result in lower take-home pay (at least in the beginning).
If you fall into a lower tax bracket than usual, perhaps this could be a good time to do a Roth conversion. As a reminder, this is the process of transferring funds from a 401(k) to a Roth IRA and immediately paying the tax bill. Or, you could sell certain assets that may be subject to short-term capital gains rates (which are taxed at your ordinary income tax rate).
If you’re pursuing self-employment or spending money on professional development and education, you may be able to take advantage of additional tax deductions. We recommend speaking with a tax professional about your career change and circumstances, as they’ll be able to help you decide what strategies make the most sense to pursue now and in the future.
Fund Your Professional Growth
People change careers for many reasons, often it’s in pursuit of a fresh start or to follow a personal passion. If you’re making a fairly drastic change, or you’d like to improve your skillset before starting, you may want to focus some time, energy, and funds on professional development.
If you’re able, research your options at multiple price points—from free resources to paid subscription-based learning platforms to in-person workshops. Figure out what sort of development works best with your learning style and budget, and decide if it’s worth pursuing. Depending on the type of work you plan on doing, additional skills or certifications could lead to higher pay or a fast track to high-level positions.
Covering the Cost of Professional Growth
Before spending money out of pocket, check with your current or future employer about what opportunities or resources they have available. Some companies will put money towards advanced degrees or certifications—though often, you’ll need to make a commitment in return (like staying with the company for a certain number of years).
If you have funds left in a 529 plan after a child went to college, you may be able to use withdrawals on eligible educational expenses (like course tuition). As long as the funds are used for educational purposes, they won’t count as taxable income—making them a tax-advantaged option when available.
Otherwise, you may need to incorporate anticipated professional development costs into your savings when preparing to make a major career pivot.
Changing Paths Soon? Prepare Your Finances First
If you’re thinking about switching jobs and trying something new, we applaud you for taking such an exciting next step. As you prepare for the journey ahead, consider what steps you may need to take to increase your financial stability through any hurdles that may arise. You may find it helpful to speak with a financial advisor about your intentions and concerns.
If you’d like to schedule a time to talk with our team at WealthChoise, we encourage you to book a complimentary consultation now.
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Sources:
1: https://study.uq.edu.au/stories/how-many-career-changes-lifetime
