How to make sure your finances are stable, before you change jobs
A career change can be an exciting time, but that excitement comes with stress. For those supporting a family, a career change can feel like a huge financial risk. No matter why you’ve decided to make this career change, just know there are plenty of ways to protect your family’s financial health during this time. Here are some of them.
1. Adjust your budget to your new salary
Practice living on less before you switch jobs
More often than not, a jump to a new career comes with a lower salary because you will have far less experience within this field and will likely have to take a lower position. Before you switch careers, you should do some research to see what your potential salary may look like and how your family can adjust your budget to get used to your new lifestyle.
To look into your potential salary in your new career, start by looking at industry averages. You may want to look at the average within your area. Keep in mind that these are averages, so you may get a higher or lower salary than expected. You may also want to look at job descriptions for open positions within your experience level to see any salary ranges listed. This will give you a much better idea of what you may expect to make in this new field and can help you understand whether or not your move is worth it.
After you have a better idea of how much you expect to be making, it’s a good idea to start living on your anticipated salary before you make the switch. This will ultimately help you understand if this career change is realistic for you and your family. Plus, when you start living on a lower salary—even if it’s just to pretend—you can save a bit more money and see what you may need to cut in your budget as you adjust to this potential lifestyle.
2. Cushion your emergency fund
Build up your savings in case you have to go without pay
Every family should have an emergency fund, regardless of whether or not they are thinking about a career change. With a job switch in mind, though, emergency funds become especially important. This way, if anything goes awry in your plan, you always have a backup plan to support your family.
The general rule of thumb for an emergency fund is to have anywhere between 3-6 months worth of expenses set aside. Though, as you switch careers, you may consider cushioning this a bit more.
How much you set aside will depend on your own situation. If it will be easier for you to secure a new job in this field, then you may want to save towards the loftier rule of thumb goal of 6 months to give yourself some leeway just in case.
If you will be entering a niche market, doing gigs, or trying freelance and you know you might have a little bit of trouble finding something, this changes things. You may instead want to save closer to a year’s worth of living expenses if you can do so. It’s best to be as prepared as possible to allow yourself some grace to miss a few paychecks while you figure out your new career change.
3. Adjust your estate plan
Create or update your estate planning documents to ensure everything is in order
It’s always a good idea to revisit your estate plan from time to time, and a career change brings up another good opportunity to do so. And if you don’t have a plan in place for your estate, now is the time to get everything situated.
When you get started with estate planning, you will want to create an inventory of your assets and any liabilities you may have. Your assets can be anything from your home to your valuables to your savings accounts. Your liabilities can be anything from mortgages to loans to credit cards.
When you have a better idea of your estate, it’s important to consider the needs of your family. To ensure that your family has a clear plan of action of how your assets will be distributed, it’s best to create a will. This will also be a good place to designate who will care for your children if you and your spouse were to pass away.
When considering the needs of your family, you may want to think about whether or not you need life insurance. Think about what would happen to your family financially if you were to pass away. Would your family have a hard time paying for childcare? Would they be able to afford the bills without you there? Do you have any money set aside for any type of inheritance for your family? If these questions raise some alarms for you, life insurance may be a good investment.
Many people assume that life insurance is unaffordable, which isn’t always the case. In fact, it’s actually incredibly easy to find affordable term life insurance policies now more so than ever.
Term life insurance is a fairly basic form of life insurance, but it might just be the right amount of coverage you need, especially if money might be tight during a career change. Term life insurance guarantees a certain amount of coverage for an agreed-upon period of time. Typically, that timeframe can range from 10 years to upwards of 30 years. If you were to pass away during that time, your life insurance company would pay a death benefit to your beneficiaries that can then be used to pay off debts, pay for final arrangements, or anything else your family needs. If your family doesn’t have a plan in place for what would happen if you were to pass away, a life insurance policy could be a good place to start when assessing your estate plan.
As you look through your estate plan, you should also think about a power of attorney and beneficiaries. You should designate a person in your life to act as your proxy to make health and financial decisions for you if you aren’t able to make those decisions for yourself. You should also check with your retirement and savings accounts to ensure you have your preferred beneficiaries listed.
Always be sure to reassess your estate plans from time to time so that it is always up to date.
4. Take advantage of current health benefits
Don’t miss out on any benefits you have from your existing job
If you are still working and have benefits at your current job, be sure to take advantage of them while you can!
Leverage your insurance to get your personal health in order in case you have to go without health insurance while you make this transition or if you get benefits that aren’t as comprehensive as what you have now. Get your new glasses or contacts, your teeth cleaned, and whatever else you may need to do.
If you pay into a flexible spending account, make sure you understand these benefits fully. Oftentimes, you cannot use your FSA account after you leave a job. It’s always best to make sure you use up all of the money you’ve put into your account so you don’t lose out on anything.
It’s also a good idea to look into what you need to do to make sure your retirement savings account is in order. You will more than likely have to roll it over into another account, so do some research into which options will work best for you and your family during this career change.
5. Pay down your debt
Erase as much debt as you can before making a career change
The last thing you want to do is leave your job and feel like you’re drowning in debt. Especially if you’re able to plan out when you take the leap into your new career, take the time to pay down your debt as much as possible. This way, you have less pressure on your family’s finances as you adjust to your new lifestyle.
6. Set up multiple sources of income
Give your family’s finances a bit of leeway with additional revenue streams
If your career move involves taking some time off without pay, it might be a good idea to consider setting up multiple sources of income. Multiple revenue sources can help give your family a little bit of breathing room while you adjust to a new income or no income at all.
There are plenty of ways to do this, and some may work better than others for you and your family:
- Start an online business – Have a hobby you can monetize? Consider starting a business with it! Places like Etsy are a great way to sell crafts and creations.
- Freelance – If you have a certain skill that can be used to freelance, like writing or graphic design, it may be worth picking up some gigs to help stabilize your family’s income
- Pick up a part-time job – If neither of these options work for you, you may want to consider picking up a part-time job so you can still help contribute to your family’s finances, even if it’s not as much as you could at your old job.
7. Time your career move wisely
Cash in on any payouts and don’t burn any bridges
If you are leaving your current job to start a new career and you have power over when you make your career move, try to time it as wisely as possible. Take note of when you normally receive bonus payouts and plan to leave after any additional income payouts happen. Use up all of the paid time off you’ve accumulated if you work at a job where you don’t get paid out for the time you’ve accrued.
Always remember to leave your current job on a positive note just in case. Give them enough notice and don’t burn any bridges. You never know when you may need those connections later on down the road!
Career changes are a big risk, but that doesn’t mean you shouldn’t take that risk! Especially if this career move is the right one for you, there are plenty of ways that you and your family can make it work. It might be tough at first, but it will be worth it!
