Imagine this: You’ve gone to collegeâeven grad schoolâto pursue a career path you always thought you wanted. But after a few years and many tuition dollars spent, it suddenly hits you: If you have to write one more press release, it might push you over the edge. If this is the case, it’s time to prepare for a career change.
Transitioning careers is not unusual. In fact, according to a survey conducted by the American Staffing Association, 38 percent of working adults say they are likely to change careers within the next year. The only problem is, if you are unsure of how to make a career change and whether it will be financially sound, you might be hesitant to make the leap.
âNo one wants to change careers without knowing the chances of success,” says Mark Anthony Dyson, host of The Voice of Job Seekers podcast, a show designed to help those in career transition. “Adequate preparation can make all the difference.”
âPreparation in every formâfrom updating job skills to financial planning and really taking time to think about what you desire in a fulfilling careerâwill be a huge factor in your career-change success.â
“How do I make a big career change with this adequate preparation,” you ask?
Learning how to prepare for a career change financially and finding out which skills you’ll need in your new career are great places to start. Take these steps to understand your career intentions, then determine the best financial strategies for achieving them:
Figure out if a career change is right for you
Before preparing for a career change, start by doing an honest self-assessment on whether or not a switch is right for you. This is important, says Dyson, because you’ll want to weigh the advantages and disadvantages of changing careers versus exploring a job transition within your current field. Doing the latter might make more sense for you if you aren’t quite ready to go through a full-blown career transition. Either way, taking the time for self-reflection will help you get to your desired career path sooner.
When you are thinking about how to make a career change and if it’s the right time for you, Dyson suggests asking yourself these questions:
What are the professional and financial impacts if I stay on my current career path? A quick list of pros and cons might help your analysis.
Are there other opportunities in my current field that I haven’t yet considered? Talk to a human resources professional or research online to understand the qualifications, salaries and opportunities for advancement within your area of expertise.
What does my ideal career look like?
Do I currently have the skills and experience that can transfer to a new career?
What are the possible financial and professional outcomes if my new career doesn’t work out?
Kelan Kline, a jail deputy turned personal finance blogger for The Savvy Couple, felt stifled by his previous job and the limitations it imposed on his time. He believed that in order to achieve career growth and increase his money-making potential, he would have to change careers. “I knew I was done working for others altogether,” Kline adds.
You may not think you have the skills and experience necessary to transition into a new career, but a tip to prepare for a career change is to consider the skills that have led to your career success thus far. That’s what 10-year human resources veteran Lisa Cassella did when she decided a new career direction was in order and wanted to follow her passion for real estate.
“As hiring and program manager for a senior living facility, I met face-to-face with with people everyday,” says Cassella, now a licensed real estate salesperson for the brokerage firm Compass. “Sometimes you have to have some difficult conversations,” she continues. “It’s the same in real estate. But for the most part, you are helping peopleâwhich is what I enjoy and a strong connection between both careers.”
Sasha Korobov, a career and success strategist, agrees that a tip for preparing for a career change is to use your current skills as a foundation for a new career. Having undergone a career change herself, she advises people to âreally think about what you want to do next, and see if you can start getting those skills and experience in the job you’re already in.”
Once you understand your motives and capabilities, you’ll have the groundwork for what needs to come next: smart ways to financially support yourself through the transition.
Prepare yourself financially for making the switch
One of the best things you can do when figuring out how to make a career change is to have a financial plan. Depending on how you approach your career change, the steps that you take to move to a new industry could impact your finances in various ways.
For example, when you start out in a new industry, you might be taking a lower level position than what you had in your previous career. This may come with a dip in income, for which you will need to adjust your budget as you progress in your new career.
If you plan to take any time off before you make the switch, you may experience a gap in income. “You have to think about how many months of income you need to save to get over that hump,” Cassella says. Cassella planned in advance so that she had at least six months of income in the bank before she made the switch to her new career.
Another consideration when you prepare for a career change is whether there is a cost investment required in moving to the new career you have chosen. For example, you might need to spend money on additional education, training, certifications and other measures before you can move into your new role. Your financial plan will have to consider dips in income that could occur if you need to reduce your hours or quit working in order to get the training and education your new career requires, Korobov says. Cassella had to get licensed before moving into real estate sales. She quit her job and took a two-week course, then immediately took the state test.
If your career change means starting your own business venture, you may have to prepare for all of the financial scenarios mentioned above. Your income might decrease as you establish your own business and gain traction, for instance. You might also have to pay for things that were once provided to you by an employer, such as supplies, computer equipment, software and health insurance.
Because of these potential challenges, having a savings plan is key when considering tips to prepare for a career change.
Fine-tune your savings to prepare for a career change
No matter which path you choose, preparing for a career change may present you with some financial risk. Therefore, it’s beneficial to have savings set aside to manage the transition. With just a few small lifestyle changes that will save you money, you can build the financial safety cushion you need to prepare for a career change, says finance blogger Kline.
Here are Kline’s tips to prepare for a career change and the areas he focused on most when he prepared for his professional move:
Reduce unnecessary expenses. As you work on how to make a career change, consider cutting back on discretionary spending such as eating out, entertainment and vacations, and set that money aside for your career change. Don’t already have a budget to track your expenses? Now is the perfect time to start one.
Pick the right type of savings account. You’ll want to put the money you save from reducing your expenses into the best type of account to support your career transition. A high-yield savings account, such as the Discover Online Savings Account, will help you grow your savings. For a long-term savings strategy, a Discover Certificate of Deposit might be a great fit.
You earned it. Now earn more withÂ it.
Online savings with no minimum balance.
Discover Bank, Member FDIC
Start an emergency fund. Similar to establishing a budget and picking a savings account, if you haven’t already started an emergency fund, now is the time to create one (or add to it if you already have some momentum with your rainy day savings). An emergency fund can help you prepare for unexpected expenses and the financial risks involved in changing careers. Experts suggest that you keep at least three to six months’ worth of living expenses in your emergency fund.
Pay down debt. If you are able to pay down debt, such as student loan and credit card debt, it will free up cash to save toward your career transition. Pay more than the monthly minimum to reduce or eliminate the debt altogether as you prepare for a career change.
With just a few small lifestyle changes that will save you money, you can build the financial safety cushion you need to prepare for a career change.
Approach your new career at a gradual pace
For some, a slower transition, with moonlighting or side hustling until they are ready to go full time, has proven effective. When Jeff Neal started his online retail site selling bait and live feeders, he was still a full-time project manager in e-commerce, but not passionate about his day-to-day. He was able to use his skills from this position to build his own online ventures.
Neal says he started his online business as a side hustle, with the intention of always having a full-time job keeping his household afloat. He has now been able to transition into being a full-time internet entrepreneur.
Korobov, the career and success strategist, also started to prepare for her career change with a part-time entrepreneurial venture that grew out of corporate coaching. “I wanted to go into business for myself as a career strategist for women, and I knew that having corporate coaching experience would fast-track my credibility with a lot of potential clients,” she says.
“I began offering workshops and brown-bag lunches at my office,” Korobov continues. This experience was a valuable lesson for Korobov in how to make a career change, helping her boost her confidence and allowing her to tweak her workshops as she got more experience.
One of Korobov’s biggest tips to prepare for a career change that she learned firsthand: “Your entrepreneurial ventures, even if done part-time, can make the transition into your career smoother, while giving you extra income to help with your financial preparation process.”
Ensure your path to career-change success
Making a career change can seem like a huge risk, since you don’t really know if it will work out in your favor. But with research and readiness, you can confidently prepare for a career change. Dyson, of The Voice of Job Seekers podcast, can’t emphasize enough that âpreparation in every formâfrom updating job skills to financial planning and really taking time to think about what you desire in a fulfilling careerâwill be a huge factor in your career-change success.”
Understanding your goals and expectationsâand trusting your gutâbefore you begin is a big step in the right direction. Says Cassella of her move into real estate: “It just made a lot of sense for me and my family. My expectations are that once I really get going, there is no limit to what I can make.”
The post Taking the Leap: How to Make a Career Change and Land on Your Feet appeared first on Discover Bank – Banking Topics Blog.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
You earned it. Now earn more withÂ it.
Online savings with no minimum balance.
Discover Bank, Member FDIC
An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
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