The top motivators for people who are thinking about changing jobs or pursuing new careers are the need to achieve financial goals, the desire to work in a field that aligns with one's passions and values, and professional sustainability.
The likelihood of experiencing financial hardship as a result of a career change, however, is one of the main barriers that prevent people from doing so.
In this guide, we will show you several ways in which you can afford the career change that you have been wanting to make.
Changing careers could mean giving up benefits that you've grown accustomed to or starting over at a junior level with a wage cut.
In spite of the fact that 58% of workers questioned said they would be willing to take a pay drop in order to change occupations, it can be especially worrisome during these uncertain economic times when it has become difficult to predict the future.
If you can manage it, it's good to have a sizable financial safety net to fall back on while changing careers. It is entirely possible, however, that you might become unable to pay your bills while pursuing your dream job full-time. So if you're looking to change careers, you must make sure that your finances are on track in order for you to afford a career change.
In this guide, we will show you just how to do that, so read on.
How to afford changing careers
You are employed with decent pay. It has been running smoothly for some time and pays the bills. You've stayed in the same profession, toiling away day after day, year after year, even though you're not happy.
Most of us have experienced it at some point in our careers and we ask ourselves how we got here. Well, we all needed to pay our bills, therefore even if we didn't enjoy the work, we accepted the first job that offered a salary high enough to cover our expenses.
You can work a job for a while, but sooner or later you will start hating what you do because it is not aligned with your values, life goals, or ambitions and ultimately you'll need to change careers if you want to keep your sanity.
The only issue is that, whether you like the job or not, you still need a paycheck to pay the bills that are due each month, so you can't exactly walk out of your situation.
By the way, if you are seriously considering a career change here are two of our most popular guides that you should go through. They are full of advice from the top experts in the industry on the subject:
Before you begin working on the journey into your new career, start by doing the math to see if you have enough money to support yourself during the transition without disruptions to things like paying your bills.
Utilize online search resources like PayScale.com, Salary.com and Monster.com to research starting salaries in your desired field. You can also study GlassDoor.com for actual job listings which provides more exact salary information.
It's critical to take into account all potential benefits, such as insurance coverage, incentives, or other perks like tuition reimbursement, when estimating the costs of a job transition.
For instance, if you switch from a position at a huge corporation to one at a startup, you might have to pay more premiums for inferior or no health benefits at all. You may need to account for the cost of COBRA in your initial financial calculations if you have health insurance via your current employer and your spouse's employer does not provide coverage.
If coverage is lost as a result of certain specific events, including voluntary or involuntary termination, COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) gives former employees, their spouses, retirees, and dependent children the right to temporarily continue their health plan at group rates.
Also, keep in mind that you will probably be in a lower tax rate if you make a lower wage or go back to school. In dual-income households, where one spouse leaves their job to launch a home-based business, the requirement for child care may also disappear. Suddenly, there may be deductions you can take advantage of that you might not have qualified for before.
By the way, if you want a detailed guide into how to switch career paths that covers everything from beginning to end, check out this guide!
How to create your budget for a career change
So you have done the math and your new career seems like it will financially support you at some point in time.
However, it's crucial to set up the financial foundation for a career move before you commit to an all-out transition. The suggestions below can help you get started on the new profession of your dreams. Here’s how to finance a career change.
Reduce or wrap up your debt
Any debt reduction you are able to accomplish is well worth the effort and can be used as a funding source for your future profession. Start by making a list of your financial obligations first.
You should be concentrating your time, resources, and attention on planning and finding your next job rather than worrying about making your credit card payment on time. Debt is a serious distraction that will hinder your ability to change careers swiftly.
Create a financial safety net
Giving up the security of a stable job and switching careers might be a dangerous endeavor if you have no reserve funds to fall back on. Make sure you have an emergency fund with, at the very least, 3-6 months of your bare minimum monthly costs before you leave your current job.
Once you transition to your new employment, these funds can be a lifeline in case of any emergency, such as a sudden job loss or medical expenses that are more than your new income can cover.
Your career change will be less stressful the more money you are able to set aside in advance for genuine emergencies and for any temporary difference in earnings that may occur with the new job.
Keep tabs on your monthly spending
Increasing your cash reserves is simply a part of the solution. It's critical to scrutinize your financial expenditures more carefully as you get ready for a change in your profession.
If you haven't already, start by making a monthly budget with columns for needs, wants, savings, and debts to assist you to understand your present spending.
Look closely at your discretionary expenditure and identify any areas where you may reduce to create a balance against a probable decrease in income. Because this is likely to impact your career change fund the most we have some great tips on how to cut expenses in a separate section at the end of this guide.
Adhere strictly to your new budget plan
It's a good idea to begin living on your new pay bracket as soon as you have made your career change budget. Consider this budget your new normal and evaluate how well you can manage it. This will be like a test run to see if your plans and budgeting are practical.
You won't likely know the precise salary for your new job until you have the offer letter in hand, but you may get a general idea of it by using tools like the U.S. Bureau of Labor Statistics (BLS) and PayScale. Search by occupation to see the typical salary for your new position based on experience and the state you live in.
Don't forget to budget for any additional costs that come with your new career. You may need to set aside money for transportation, child care, specialist equipment, or a new laptop, all depending on your new work requirements.
Start a side hustle
Find a way to make some money outside of your current 9 to 5 job. Along with your full-time job, this will enhance your financial cushion and will help you increase your bank balance.
The ideal situation would be to locate a part-time or freelance job in your current or desired field. This will allow you to work from home and help you advance your skillset all the while earning some additional money for your career change fund. That’s killing two birds with a stone!
If that isn't possible, any additional work, such as a seasonal job or short-term side hustle, can help you fund the desired career shift.
It's wise to gradually move to a new career while maintaining a dependable income at your existing job if at all possible. Consider taking classes or working toward credentials in your spare time if you're thinking about switching to a new industry.
You can gain useful experience in your new field without jeopardizing your financial stability by working a part-time job or taking on an adult internship in your spare time.
On the other hand, if you're thinking about starting a new business, try to determine if it has the ability to support you down the road by gradually growing it while still working a full-time job. This guide: 10 essential career change tips to becoming an entrepreneur, is a great place to start planning for your new business.
Make plans with the end in mind
Although it may be tempting to use your retirement fund to pay for a career change, do everything in your power to leave that fund untouched. In addition to having a negative impact on your retirement plans, early withdrawal of funds will result in high taxes and penalties.
Consider making greater contributions now at your current job to make up for fewer contributions in the future if you'll be switching to a career with a lower salary or believe your new employer won't match your contributions.
Know what you are worth
Do your research and decide on the lowest pay you're willing to take for changing careers. Even if you're switching to a completely new career, know what you bring to the negotiation table.
Start by bearing in mind how much value your past experience, college degree, certifications, and transferable skills will add to the new job.
It's also crucial to give yourself time to consider potential consequences before you talk salary with your new employer. Will you move if the money on offer isn't enough? Or is this a "dream job" situation where earning money is not the main motivation?
What percentage of a pay decrease are you ready to accept if any? Prior to switching careers, you can prepare an action plan by knowing what you are willing to accept by drawing your floor limits.
Put your health first
You might not have access to employer-provided healthcare in your new employment, depending on the type of career move you're making, such as going from employee to freelancer or full-time to part-time.
Sometimes, you can have access but must wait a certain amount of time before you can apply for benefits.
As discussed earlier, if you already have health insurance, COBRA can fill the gap after you start working at your new job, but at a price that could deplete your budget for a career shift.
Before leaving your present coverage, take care of any annual check-ups or planned operations to avoid having to pay the price with your health and bank account. On a similar note, find out if you need to use up any remaining funds in your Flexible Spending Account (FSA) before you depart.
If you have trouble spending, you can use your tax-free FSA funds to purchase more than 4,000 things at FSAstore.com. You are welcome!
Find the right allies
Make sure your family members, friends, and coworkers support your goals if possible. One of the most important resources you can have while changing careers is a support system that can help you stay accountable for your goals.
Inform everyone that you need to establish a budget for your career transition and that you might be a bit more discerning with your spending compared to the past. Most people close to you will understand and even help support your decisions.
Unmudl Tips to slashing your monthly expenses
For great rewards, you have to make sacrifices. If you want to make that career change you will have to make some cuts in your spending. Depending on how passionate you are about your plans you should be able to survive without many of the perks that regular people enjoy.
Here are a few tips to reduce those unnecessary expenses:
Tip 1: Cancel automatic membership renewals and subscriptions
You probably have several subscriptions, including Netflix, Hulu, Spotify, gym dues, trendy subscription boxes, and Amazon Prime. Any subscriptions you don't use frequently should be canceled.
And when you buy something, be sure to switch off auto-renew. If you unsubscribe and later decide you can't live without it, consider subscribing once again—but only if it is within your new, more realistic budget.
Tip 2: Spend less money on groceries
After creating a budget, the majority of consumers are surprised by their real monthly grocery spending. Additionally, the typical American family of four (with two children under the age of 5) spends about $550 per month on groceries alone.
It's easy to go through those aisles, picking some ice cream here and a few bags of chips there, and then topping it off with the exciting treats at the checkout. But those modest expenditures, also known as budget busters, build up significantly and cause the budget to go over every month.
Tip 3: Purchase generic merchandise instead of premium brands
Getting rid of name brands is undoubtedly one of the simplest methods to cut costs. Marketing is typically the only aspect of name-brand products that is superior.
In comparison to their marked-up brand-name counterparts, generic versions of medicines, everyday foods (such as rice and beans), cleaning products, and paper products are significantly less expensive while performing equally well.
Tip 4: Cut cable subscriptions
It is no secret that cable subscription costs are skyrocketing. With all fees included, the typical monthly cost of cable TV is over $217, which works out to more than $2,600 a year!
The good news is that you don't have to watch your favorite shows on cable anymore. Cut the cord and learn how to save a tonne of money utilizing network apps and streaming services as cable alternatives.
Don't go subscription service happy though. Only register for streaming services that you really need. You might actually end up spending more than the cost of cable if you sign up for everything available.
The decision to change careers might be scary, and many people think they can’t afford a career change. You can lessen some of the anxiety and worry associated with a career transition by cutting back on costs, and creating a cash cushion.
Even if this takes you a few years to finally be able to say, "I resigned!" it is still preferable to spending your entire working life in a job you despise.
Anyone has the ability to manage a change in career, according to all the top personal finance gurus out there. You just need to manage your budget, create an emergency fund, and start paying off debt.
You have power over how you define happiness, how you present yourself and your skills, how you plan your future, and how you manage your money. You don't have to be controlled by your job or your finances. You can devise a strategy to escape to something better and more meaningful to you!
In this guide, we showed you how to do just that and hope that it helps you to be able to afford that career change and that dream job.
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Frequently Asked Questions
How do I fund my career?
You will need to make sacrifices by cutting on costs, groceries, and subscriptions and find other ways to build a financial safety net before you make that career change.
How do I change careers without losing money?
Do your research thoroughly before you jump into your career change. Most people get setbacks because they simply are impulsive and do not have research, strategies, and plans in place to make the change without disruption.
How much should I save for a career change?
Your mortgage, your family status, and your aspirations for your lifestyle will all affect how much money you should set away for a career transition. We suggest saving up at least six months' worth of costs before the change.