New colleagues. A higher salary. Fewer working hours. More travel.
A career change can be an exciting life milestone. For some it means exploring a new industry; for others it’s chasing a long-sidelined passion.
With all this excitement, however, it can be easy to forget the financial impact of a career change.
Quitting is usually a permanent decision that can’t be reversed. Are you financially ready to take that bold step? According to a recent survey from Credit Karma, 28 percent of employed workers thinking about quitting admit to not being financially prepared to do so.
Here’s the thing. Career transitions do not always go smoothly. You may find yourself momentarily out of work if your career change takes longer to achieve than expected. Changing careers could also mean going back to school or moving to a new city.
A few months out of work can really dent your bank account. By taking the time to organize yourself financially before you jump ship, you’ll be that much more prepared to knock your new role out of the park.
Try these five money moves before you put your career on hold.
Learn to live below your means
You may have to take a significant pay cut in your new career. If so, you’re going to have to learn to live on less money than you’re used to. You may even need to stretch each dollar a bit further to survive extended periods with no income.
Create a realistic budget to find out exactly how much you spend every month and on what. List all your household expenses, including rent, utility bills, student payments, subscriptions, and dining out. Your old bank and credit card statements will provide this information.
Once you know exactly how much you’re spending every month, cut all the unnecessary expenses.
Create an emergency fund
You may be living on less, but what will happen when an unexpected medical bill comes up?
This may sound old-hat, but building or adding to an existing sinking fund will help ease the anxiety of starting a new career. Save three to six months worth of your normal living expenses in a separate and easily accessible savings account.
Aim for the higher end of that spectrum in case your transition doesn’t go as planned. Dip into the fund only for emergency situations like fixing a leaking roof or addressing a health-related matter.
Plan for insurance coverage
Making a major career change puts you in a tricky situation when it comes to your life, health and disability insurance coverages typically offered through your employer.
When you take an extended break from work your employer will no longer offer you insurance coverage. Luckily, you can use your state’s health insurance exchange to access health insurance. You can also purchase disability and life insurance through third-party providers.
Create multiple income streams
As stated earlier, it may take longer than expected to land a well-paying job or just a job. You need to hope for the best but plan for the worst. Having a backup plan for the worst-case scenario can save you a lot of stress.
Diversifying your financial risk will give you much-needed peace of mind. Instead of depending on a single paycheck to sort all your bills, find multiple ways to bring in extra money.
There are tons of gigs to complement your day job that you can do from the comfort of your home. You may not have to delve into a side hustle immediately, but be aware of your options.
Do your research and discover what matches your skill set so you can seize moneymaking opportunities when the need arises.
Consider getting a bank overdraft
You might be eligible for an overdraft if you have a current account.
An overdraft allows you to go into a negative balance on your account if the need arises.
Contact your bank to inquire about the overdraft facility you already have, if you can get a higher overdraft, and the interest rate payable.
A career change can be a risky route if you aren’t careful. On top of navigating your new role and building new working relationships, you will also need to make some financial decisions and changes.
Don’t let finances get in the way of your dreams. Making the above money moves will help you to overcome financial roadblocks so you can pursue a career that makes you happy. If you feel overwhelmed, a professional financial advisor will give you insights to smoothly navigate your new situation.