6 Essential Steps to Afford a Career Change

These tips can help make your dream of changing careers a reality.

You have this job. It’s been going well for a while now and it pays the bills. You’re not overjoyed, but you don’t hate it either, so you’ve stayed, grinding away day after day, year after year.

You are good at your job. Maybe even great. And when you interview people who want to work with/for you, they seem okay too – nothing world-class yet maybe, but they look promising and if things go on as they are then eventually they’ll be just that: promising.

The problem is that one day (maybe sooner than later) an event will happen which won’t allow you to ignore what we’ll call “an opportunity” anymore. Could be anything from a bad project to a new company being started by someone you know, from being told about a great conference you could attend for free to seeing an ad about some job position that comes with much more responsibility and potential than your current one. You’ll feel like taking this opportunity will mean something good happening in your life.

You have two options: stay or leave and “leave” could be anything from transferring departments within the same company to quitting without another job lined up. Each of these will bring different short-term and long-term consequences, usually tradeoffs between them.

When they look at the situation with a rational eye those who are given the option to make that decision are not shocked that their brain struggles finding a satisfying answer. It’s just natural that this is how things are.

Do you want to tell your boss, “I quit!” sooner than later but can’t afford to be unemployed?

Most of us have been there at one time or another. We all have bills to pay and we take the first available job with a high enough salary to make ends meet, even if we don’t like that job.

While it’s okay to work the job for a while, you know for fact the grass is greener on the other side, and eventually, you will have to switch careers to avoid going crazy.

I get it, I’ve been there too.

If you’re like me, that bitter taste in your mouth each time you step on company property gives you the motivation to seek out a better career. The only problem is that you can’t exactly quit because you still need a paycheck to pay the bills that arrive each month, whether you have a job or not.

Avoid Consumer Debt to Throw Off Job Chains

The first step you need to take to afford a career change is to get out of debt, specifically high-interest consumer debt. In fact, the average person in 13 states borrows more than they earn. Just remember, borrowing more than you earn year in and year out never ends well.

Maybe the only reason you remain at your job is that you must make a certain amount each month to pay the bills. Switching to a different job that pays less means you plunge further into debt.

For every $5 the average American earns, $1 goes to debt payments. If you make $50,000 (the average national household income), $10,000 of your salary immediately goes to debt payments.

By paying off that credit card balance or car loan, your monthly expenses drop and suddenly you have a disposable income that can be invested or put into a savings account. More importantly, you can afford to make less money each month and still pay your bills on-time each month.

If you had to take a pay cut and only make $40,000 a year at your new job, you can because you no longer have those pesky monthly loan payments that require you to earn more to make ends meet. I had $80,000 in consumer debt I repaid before I changed careers, and it took five years of frugal living to do that.

Build an Emergency Fund of Six Months Living Expenses

Hopefully, you can build an emergency fund while you repay any loans you might have. Most financial advisors and books will tell you to set aside three to six months of basic living expenses in case you get hit with an unexpected bill or lose your job.

Don’t quit your job unless you have an emergency fund. This is my firsthand experience, I quit my job in August 2015, and it wasn’t until May 2016 before I started working full-time again in my desired career field.

The original job I lined up fell through three weeks after I quit my undesirable job, thankfully we could live on my wife’s salary during that time. Could you afford to not have a regular income for nine months?

If you can remember back to the Great Recession, it took three months for the average person to find a new job with a replaceable income, that is when your new job earns the same salary as your current job. Don’t think about quitting your job until you have at least three months of living expenses saved up, that way you aren’t forced to spend your time working instead of job hunting because you quit your job prematurely.

Consider Replacement Insurance Options before Changing Careers

Another expense you might overlook is medical benefits. Non-employer health insurance and COBRA coverage can be expensive if you have an insurance gap between jobs. You need to factor these costs into your projected monthly budget once you no longer receive medical coverage from your current employer.

Tax credits are currently available for medical plans on the healthcare exchange. You and your family can also be uninsured for two consecutive months before you are subject to the Obamacare penalty.

Generate Passive Income with Taxable Accounts

Depending on your age, you might already have a sizable investment portfolio. In addition to contributing to your 401k or IRA, invest some of your salary in a taxable investment account or P2P account as well so you still earn steady passive income even when you might not currently earn a paycheck (active income).

Because you have an emergency fund to tap into first for any unexpected expenses you might encounter as you switch careers, your investments can remain untouched. If for some reason you need to sell your investments to make ends meet, pulling from a non-retirement account means you won’t have to pay up to 30% in penalties and taxes by making an early withdrawal from your 401k or IRA.

Compare Your Current Monthly Expenses to Your New Monthly Expenses

Before I turned in my two weeks notice, my wife and I sat down several times and compared how much we spent each month now and how much we expected to spend once I started my replacement job. My career change involved moving to another state (different income taxes and cost of living), taking a 50% pay cut (but also fewer working hours), and our first child was born two months earlier.

We would have quit earlier, but we couldn’t afford too. It was mostly because my wife and I both needed to find new jobs first. Once we were fairly certain the math supported our goals, we quit. We haven’t missed a single bill payment since I quit my job and it’s primarily because we took the time to plan ahead as much as possible.

Maintain Your Personal and Professional Relationships

The last tip is to maintain your personal and professional relationships as much as possible. The adage “it’s not what you know, it’s who you know” still rings true. It was networking that helped me and my wife to line up new employment.

Hundreds, if not thousands of people, might submit resumes for a single job opening. Before I quit, I spent a year sending resumes to different employers, and it wasn’t until a family friend recommended me for a position that I was finally able to change careers.

You never know when you may need to call on a friend or co-worker, or when they might need you, so don’t burn any bridges if possible. Nobody can predict the future. In times of personal uncertainty, relationships can be the most valuable thing you possess.

Switching careers can be nerve-wracking, and you should never quit your job on a whim. By minimizing your expenses and building a cash reserve, you can reduce some of the stress and uncertainty that can come with a career change. Even if it takes you seven years (like me) to finally be ready to say, “I quit!” it’s still better than working a lifetime in a job you hate.

Read the Entire Road to Financial Freedom Series

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