Be honest about your finances before switching careers
With the possibility of a reduced income, now is the time to determine those expenses that you can do without.
The desire to switch careers can arise at any stage in your professional life. However, the decision to leave a secure job to make a fresh start can be as terrifying as it is exhilarating. If you’re considering this route , an honest review of your financial situation can help you determine if the time is right to take that leap.
Adelle Léger, VP, financial planning specialist for RBC Wealth Management Services advises those who are considering a major career change to thoroughly assess their financial situation.
“The main concern for most is that income will go down over the short-term,” says Léger. “And can you easily adapt to reduced income, or even no income, for a period of time?”
While there is no single formula that determines your readiness to start your career anew, the following tips can help determine whether you are prepared for the financial ups and downs that often accompany it.
Be realistic
Although it’s nice to believe that everything will fall easily into place and the income will flow, the reality isn’t always so rosy. It’s important to be honest about how a career change will affect income over both the short-term and long-term. What are your expenses? Do you have a spouse to help cover the shortfall in total household income? Are there dependents to consider?
In many instances, a new career involves investment, as well. Whether it’s training to acquire skills, inventory to start a business, or marketing costs to build a clientele, these are new expenses that you don’t currently incur.
“This means it’s not just reduced income, but cash is also going out. Do you have savings or financing in place for it?” says Léger.
Get a snapshot
Make a list of your assets and liabilities to get the most realistic assessment of your current financial situation. Review your debt payments and timelines for paying them off. With the possibility of a reduced income, now is the time to determine those expenses that you can do without. If your current employer provides health benefits and a pension, these need to be included in your calculations, too.
“Regardless of what the financial situation is, those who are uncomfortable with financial planning tend to avoid looking at it,” says Léger. “And that can slow someone down from making a viable career change.” She recommends reaching out to someone with financial acumen for guidance. This can be as simple as asking a friend who knows finance or taking a more formal approach by hiring a professional such as a chartered accountant.
Have a plan
Setting up a plan can help alleviate some of the discomfort that comes with the risk of switching careers. Léger recommends giving yourself a deadline for the amount of time you’re willing to pursue the new venture.
“For example, if you’re not sure it will work out, give yourself two years,” explains Leger. “Worst case scenario, if your income is zero or limited in that time frame, you would return to some form of employment.”
This is where a Plan B comes in handy. Have a back up strategy in place should the new career or venture not work out.
Compromise
There is no rule that says you have can’t transition slowly into a new career. Many people are able to maintain the secure job while building a second one, on the side. This strategy enables you to discern the viability of the new career without risking a significant loss of income.
While it’s never too late to consider switching to a career to find more fulfillment, an honest review of your finances will help ensure you’re taking that leap with your eyes wide open.