Wednesday, July 19, 2017

Personal Finance Tips During a Career Transition

If you’re considering a career transition, you have plenty of company. The majority of people consider changing careers at least once in their working lives.

Not knowing how to prepare for a career transition financially holds many people back. It requires research, planning, and lifestyle changes to do successfully.

Personal Finance Tips

If you’re serious about a career transition, following these personal finance tips will make the path to a new career go more smoothly.

Set aside savings

You might not know yet how much you need to save, but start saving now. You’ll need to set aside savings for months or possibly years before you make that big career transition.

The usual advice is to set aside at least six months of take-home pay. Up to a year of pay is better. The bigger your financial cushion is, the less stressful the transition will be.

Create a separate savings account for your career transition fund. Some online banks offer higher interest rates for savings accounts than brick-and-mortar banks do. Also, if you keep these savings at a bank other than where you usually do your banking, you’ll be less tempted to dip into the account.

You may have to make some lifestyle changes to be able to set aside a significant amount of money every month. Start tracking where your money goes.  From little things you buy to bigger expenses such as transportation and housing, you can find ways to spend less and save more.

Research the career you want

How well do you know the career that you want to change to? What are the job prospects in the field? Are typical salary levels similar to, lower, or higher than those of your current job? Will you have to start at a lower pay rate and work your way up?

If you’re going to be self-employed, what operating expenses will you have? How long will it take until you have enough clients to be profitable?

Career goals

The answers to these questions will help you plan how much to save before making the career transition.

Self-employment expenses might include a new computer and other home office equipment, self-employment tax, and health insurance.

Consider also changes in tax deductions and tax credits.

Research and plan for career transition expenses

How much will it cost to get to the starting point of your new career?

Education can be a major expense. Take into account the cost and time for any courses you need to take to become qualified for the job. If you can study part-time, start taking courses now. 

Save on costs for education wherever possible. Look for scholarships and financial aid. Claim tax breaks for your tuition.  Rent textbooks or buy used ones. Claim your education deduction on your income tax return.

Allow for moving costs if you’ll be relocating. Since they’re job-related, your moving expenses might qualify for an income tax deduction.

If you’ll be starting your own business, create a business plan and estimate your startup costs. If you’re working for a company, there’s some expenses you need to consider. Factor in other expenses your new career may entail, for example, a new wardrobe, a vehicle, or professional memberships. 

You also need to consider your time needs. You’ll need to tweak your resume, get your references in order, work on professional development, network, and manage your online reputation.

Continue working

From a financial point of view, it makes sense to stay at your current job as long as you can while preparing for your career transition. If that isn’t an option, consider a part-time job or temporary jobs while you work on making that big move. Having some income will make your savings last longer and ease the financial stress during the transitional period.

continue working

Often the bigger job sites are overcrowded and it’s hard to stand out. Search local job boards where you live instead. Often, there are more localized opportunities with smaller companies, great places to look if you’re planning on transitioning careers. 

Finding a job in your new field is ideal, but don’t worry if it isn’t. At this point, you want a part-time or short-term job to help with your finances. Side gigs can also help with the transition.

Maximize your money

You might be making more money once you’re settled in your new career. But while you’re saving for it, and during the transitional period, you’ll need to live on less money. You’ve already cut some expenses to set money aside. Good. Now you need to cut more expenses.

Create a budget for how you’ll live between careers. Include essentials: housing, food, and transportation. Look at what you can eliminate or reduce from the non-essentials, and start eliminating and reducing now. You’ll be glad you did when your savings start to dwindle. Also, by starting this part of the process now, you’ll know that you’re capable of doing it.

Keep in mind that this lifestyle change is temporary. It’s part of the process to reach your goal. Many people never make that career change they dream of. Fear of the unknown and not knowing what steps to take may hold them back. However, you’re more likely to regret not making the transition than you are to regret going through it.

You can make the transition into a career that fulfills you, one step at a time. Starting your financial preparation is the first step. 

Susan Ranford
About the writer: Susan Ranford is an expert on job market trends, hiring, and business management. She is the Community Outreach Coordinator for New York Jobs. In her blogging and writing, she seeks to shed light on issues related to employment, business, and finance to help others understand different industries and find the right job fit for them.

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