Navigating the choppy waters of a career change can often feel equal parts exhilarating and intimidating. The promise of new opportunities is tempered by the uncertainty of stepping out of our comfort zones. Amid the myriad of questions and 'what ifs,' there's one aspect we tend to overlook – the impact on our personal finances. Hence, it's not just crucial, it's empowering to plan ahead. In this article, we're going to explore steps to efficiently re-align your personal finances with a career change, ensuring a smooth transition into your exciting new professional phase! So, buckle up, grab a cup of your favorite beverage, and let's sail into carving out a financial plan for your career transition!
The Significance of Financial Planning in Career Transitions
The implications of a career change can be varied. You may be going from a low-paying profession to a high-paying profession (or vice versa); your career change may require you to temporarily leave the workforce for additional training/education, which may require special planning around supporting yourself and others during the transition.
Practical steps to Financial Planning for a Career Change
1.) Set your Compass. Setting a clear direction is a crucial first step. Research your new career, the additional education required (and its cost), the training duration, and the potential income and benefits. Seek a mentor to guide you—there's no need to reinvent the wheel. Mentors can be people, books, blogs, or even Reddit!
2.) Explore the Financial Landscape. The next step on this new journey is to grasp the state of your finances. This includes identifying current sources of income, such as your current job and your spouse's job, and short-term and long-term incentive compensation, such as stock equity and bonuses. Other sources of income, such as side hustle or passive income, such as real estate or investment income, should also be assessed. Looking closely at your expenses, which are fixed vs. discretionary, will help you better understand how much flexibility you have during this career transition. Lastly, taking inventory of your assets and liabilities will help you create a picture of your current net worth, which will be informative for assessing where you currently stand savings-wise for retirement and other medium and long-term financial goals.
3.) Chart your Voyage. We can’t have a personal finance blog without talking about a budget—or at least this one is not complete without it. Setting out a budget is akin to plotting your financial journey. Your budget should be realistic and flexible to accommodate the change ahead. Include essential expenses, plan prudent savings, and include a safety buffer for emergencies.
4.) Prepare for Rough Seas. During a career transition, the financial seas can often be stormy. A contingency fund is your lifeboat, providing a sense of security during these tough times. Aim to stash away at least 3-6 months’ worth of living expenses.
5.) Hoist your Sail, but Keep an Eye on the Horizon. As your journey progresses, ensure to review your financial plan regularly. Just like unpredictable weather, financial circumstances can change rapidly. Regular reviews allow you to adjust your plans and ensure you remain on the right course.
6.) Let your Financial Ship sail, mate! With all the preparations done, it’s time to embark on your career change. Remember, rough seas make skilled sailors. With shrewd financial planning, not only will you weather the waves, but you’ll also discover new financial oceans to explore! And when you successfully navigate these waters, you'll feel a sense of accomplishment like no other.
Sacrifices and Compromises in Career Change
Remember, your journey will be specific to your circumstances. Perhaps you just sold your start-up or have had a financial windfall. Perhaps your spouse has a great job with great benefits, and you are able to live off one income during the transition. Alternatively, it may require potential lifestyle changes that might be a tough pill to swallow. Be sure to get buy-in from your stakeholders (family) so they can support you along the way.
Conclusion
A key to your success in your career pivot will be assessing your assets/liabilities/income/expenses before, during, and after the move. That way, you can adequately adjust your financial life before the move and put money aside to make the move successful. Are you ready to be excited about getting out of bed in the morning? I did a career transition a few years back and I can say it was worth it!
WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen.
Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.
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