A higher salary. More job security. Doing what you love. Fewer hours. More travel. Changing careers can be rewarding for many reasons, but career transitions don’t always go smoothly. Your career shift may take longer than expected, or you may find yourself temporarily out of work if you need to go back to school or can’t immediately find a job. Planning for the financial impact can make the transition easier.
Do your homework
First, make sure that you clearly understand the steps involved in a career move, including the financial and personal consequences. For example, how long will it take you to transition from one career to the next? What are the job prospects in your new field? How will changing careers affect your income and expenses in the short and long term? Will you need additional education or training? Will your new career require more or fewer hours? Will you need to move to a different city or state? Is your spouse/partner on board?
Next, prepare a realistic budget and timeline for achieving your career goals. If you haven’t already done so, save up an emergency cash reserve that you can rely on, if necessary, during your career transition. It’s also a good time to reduce outstanding debt by paying off credit cards and loans.
And here’s another suggestion. Assuming it’s possible to do so, keep working in your current job while you’re taking steps to prepare for your new career. Having a stable source of income and benefits can make the planning process much less stressful.
Hands off your retirement savings
Planning ahead can also help protect your retirement savings. When confronted with new expenses or a temporary need for cash, many people tend to look at their retirement savings as an easy source of funds. But raiding your retirement savings, whether for the sake of convenience, to raise capital for a business you’re starting, or to satisfy a short-term cash crunch, may substantially limit your options in the future. Although you may think you’ll be able to make up the difference in your retirement account later–especially if your new career offers a higher salary–that may be easier said than done. In addition, you may owe income taxes and penalties for accessing your retirement funds early.
Consult others for advice
When planning a career move, consider talking to people who will understand some of the hurdles you’ll face when changing professions or shifting to a new industry or job. This may include a career counselor, a small business representative, a graduate school professor, or an individual who currently holds a job in your desired field. A financial professional can also help you work through the economics of a career move and recommend steps to protect your finances.
Going back to school
Before you start applying to graduate school, ask yourself whether your investment will be worthwhile. Will you be more marketable after getting your degree? Will you need to take out substantial loans?
In your search for tuition money, look first to your current employer. The first $5,250 of employer-provided education assistance is exempt from federal income tax. But read the fine print: some employers may require you to choose a course of study related to your current position, maintain a minimum grade point average, and/or continue to work at the company for a certain period of time after you graduate. Also, investigate whether you can continue to work at your company while you attend school part-time.
Students attending graduate school on at least a half-time basis are eligible for Uncle Sam’s three major student loans–the Stafford Loan, Perkins Loan, and graduate PLUS Loan. Also, at tax time, you might qualify for certain tax benefits, such as the Lifetime Learning credit–see IRS Publication 970 for more information.