In any major life change, money becomes a factor as to how, when and why those big decisions are made. Is your bank balance keeping you from making a career switch? It’s important to be financially stable when you make a big change in your professional life.
Some career changes come suddenly, but it is important to acknowledge the fact that the switch will affect your finances in a big way. Your career change needs to be conducted thoughtfully and gradually, as job searches, relocation and planning take time — and time equals money.
1. Start Saving Now
You’re about to embark on a major transition in your life, and considerable thought goes into your next move. It’s tempting to spend more during your switch, especially for a one-time surprise or special expenses. You’ll need to do your research and think about fixed and overhead costs.
What is the dress code like at the new company? Will you be expected to socialize over fancy dinners and attend big conventions? Will you be expected to front money for expenses the company reimburses later? Are there relocation expenses you’ll incur during the move?
You’ll need to save for those transition costs before the date of your resignation. You’ll also want to know how long your savings will sustain you, which means getting ahead on taxes and creating a new budget.
2. Get Ahead on Taxes
Various aspects of your finances will be impacted by a career change. While you realize a salary shift will affect your finances, taxes must also be taken into consideration:
- When your income rises, are you still eligible for the same tax credits and deductions?
- If earning less, will you be eligible for other helpful tax credits and deductions?
- If planning for self-employment, consider items you may be able to write off as well as how much money you’ll need to set aside for taxes. For example, those who are self-employed pay estimated quarterly taxes, and many set aside around 30 percent of their income to be on the safe side.
You may fall under a new tax bracket with your new salary. Talk to an accountant to go over the ins and outs.
3. Create a Fair Budget for Your Lifestyle
When creating your new household budget, you’ll need to consider the full spectrum of your lifestyle needs and desires. Of course, your base household expenses will include mortgage/rent, utilities, installment fees, security deposits, groceries, gas and entertainment. Don’t forget other commute costs, such as taking the train or passing through tolls. Think of new professional attire as investment pieces.
What makes your lifestyle comfortable? What activities do you enjoy? Will you have to cut back on certain aspects, such as making your coffee at home? Can you afford to upscale your lifestyle a little? Use online calculators to help you determine how lifestyle choices affect the money needed to maintain it, to your budget’s detriment or success. Reward yourself, but don’t go wild just yet.
4. Consider Your Benefits
“Choosing a new career path can open a world of exciting experiences,” says Melinda Wilke, a wealth management advisor for Northwestern Mutual. “Being aware — and in control — of your finances helps to ensure you’re ready to take advantage of these opportunities.”
Wilke advises you to look over your benefits package and supplement or update as necessary. Employer-sponsored life insurance, 401(k) plans and disability insurance must be taken into consideration:
- Have you updated your beneficiaries?
- Do you have to wait before your coverage kicks in with your new employer? If you have to wait, get transitional coverage such as a short-term health plan.
- Does your new 401(k) asset allocation work for both you and your partner? Meeting with a financial planner is helpful to find out if rolling over your old 401(k) into a new one is worth the decision to achieve your retirement goals. You can also place your money into an IRA account, which means you no longer need an employer-sponsored plan and you’re not constantly switching retirement accounts with a new job.
5. Don’t Forget Professional Dues
As a part of your career growth, don’t forget professional dues. For example, memberships with organizations in your industry that host meetups and workshops are valuable assets. Budget for and pay those dues.
Do you need to brush up on any software or language skills? Research classes and see if your employer will reimburse or pay for the expenses. What will you have to cover?
A career change is exciting. You’ll be in a new environment and have fresh perks, such as working from home, getting a better benefits package or upgrading your wardrobe. However, the full spectrum of your existing and future expenses must be considered for the career switch — from savings to taxes and planning for relocation, lifestyle and professional expenses.
Have you ever made a major career switch? What steps did you take, and what did you wish you had planned for before your resignation date? Share your experience below in the comments, and subscribe to Punched Clocks for more career success and development tips.
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