Chas­ing a dream? Fix your fi­nances first

Kuwait Times - - BUSINESS - By Liz We­ston

Mark Howard of Basalt, Colorado, earned a hefty six-fig­ure in­come dur­ing his 25year ca­reer in fi­nan­cial ser­vices. His dream, though, was to teach high school - a job that paid about $40,000 a year. When he floated the idea past his wife and busi­ness part­ner, Danielle Howard, her re­ac­tion was sur­prise and un­ease. He was 54, she was 44. They had two kids in col­lege, a big house and a life­style based on their $250,000-plus in­come.

But her ex­pe­ri­ence in the life plan­ning branch of fi­nan­cial ad­vice taught her to ask search­ing ques­tions of clients and fol­low up on their an­swers. “One of the ques­tions is, ‘What would you re­gret not hav­ing done if you were on your deathbed?’” says Danielle Howard, a cer­ti­fied fi­nan­cial plan­ner. “And his an­swer was, ‘I would re­gret not hav­ing taught school.’”

Af­ter a lot of “soul-search­ing and num­ber crunch­ing,” she says, they sold their house and down­sized to a smaller one. They gave up ex­pen­sive va­ca­tions for shorter trips closer to home. Mark Howard, now 66, hap­pily taught English for 10 years and re­cently re­tired from teach­ing this past spring. “It was a won­der­ful time. I loved it,” he says.

Roll the dice - but re­duce the risks

Im­prov­ing your life some­times means tak­ing big risks, whether it’s start­ing a busi­ness, go­ing back to school, chang­ing ca­reers or quit­ting a job you hate. Whether that risk pays off de­pends a lot on how you han­dle your money. “Two things, in par­tic­u­lar, make a huge dif­fer­ence: hav­ing small on­go­ing ex­penses and hav­ing a large cash rainy­day fund,” says Jon Luskin, a cer­ti­fied fi­nan­cial plan­ner in San Diego.

Re­duc­ing ex­penses and pay­ing off debt helps build a cash hoard ahead of your big leap and in­creases the odds you’ll be able to cover the bills af­ter­ward, Luskin says. Typ­i­cally fi­nan­cial plan­ners rec­om­mend dual earn­ers have an emer­gency fund equal to at least three months of ex­penses. Sin­gle earn­ers should have a six-month stash. Peo­ple mak­ing a tran­si­tion that in­volves a pay cut, or no pay at all for a while, should save even more, Luskin says. “Fig­ure out how long you an­tic­i­pate your pay cut - one year? Two years? - and save ac­cord­ingly,” he says.

The plan­ning re­quired to project fu­ture in­come and ex­penses should help peo­ple dis­cover whether their leap makes sense. Those con­sid­er­ing a re­turn to col­lege, for ex­am­ple, should de­ter­mine the new job they want, how much the job pays, how plen­ti­ful those jobs are and the to­tal cost of the education. That will give them a far more re­al­is­tic pic­ture of their prospects than just as­sum­ing education will al­ways pay off, says Bre­anna Reish, a cer­ti­fied fi­nan­cial plan­ner in River­side, Cal­i­for­nia.

Be­fore you quit, use your ben­e­fits

Peo­ple also need to look far­ther down the road to see how the change may af­fect their abil­ity to save for re­tire­ment and other goals. Earn­ing, or sav­ing, less may re­quire work­ing longer, for ex­am­ple. Fi­nan­cial plan­ners ad­vise clients to take full ad­van­tage of any ben­e­fits they cur­rently have be­fore mak­ing their leap. Get­ting den­tal work or new glasses now makes sense if you’ll be mak­ing do with bare-bones health care cov­er­age dur­ing your tran­si­tion, for ex­am­ple. You also may want to stay put in your cur­rent job awhile longer if you’re about to vest in a re­tire­ment or stock op­tion plan or qual­ify for some other fi­nan­cial ben­e­fit. Sa­muel Boyd, a cer­ti­fied fi­nan­cial plan­ner in Wash­ing­ton, D.C., had one client who was plan­ning to leave her job at a non­profit to start her own busi­ness. Boyd dis­cov­ered that the client was el­i­gi­ble to have the bal­ance of her stu­dent loans erased through the Public Ser­vice Loan For­give­ness Pro­gram if she stuck with the job for a few more months. “She’ll be one of the first Amer­i­cans to take ad­van­tage of this pro­gram that she had no clue about,” Boyd says.

Leon C LaBrecque, a CFP and CPA in Troy, Michi­gan, asks his clients to tell him the pros and cons of not mak­ing the leap as well as the risks and ben­e­fits of go­ing through with their plans. Those are the same ques­tions LaBrecque asked him­self be­fore start­ing his own wealth man­age­ment firm in 1989. LaBrecque says he had “a nice six-fig­ure job in cor­po­rate education” but wanted more free­dom. “I mea­sured the ben­e­fits of do­ing ver­sus the risks and weighed those against the ben­e­fits of not do­ing and the risks,” LaBrecque says. “I de­cided (hockey leg­end) Wayne Gret­zky was right. You miss 100% of the shots you don’t take.”

— Liz We­ston is a cer­ti­fied fi­nan­cial plan­ner and colum­nist at NerdWal­let

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