7 Financial Planning Strategies for a ‘Great Resignation’
Making a career change can affect your financial planning strategies. It is critical to plan and prepare for how this change will affect you and your finances.
Besides considering your new career potential and the education or training you may need, you should carefully analyze your budget, savings, health insurance, and retirement goals before committing to this significant change in your life.
If you are one of the many people considering a career change during this wave of “Great Resignation,” a CFP® professional can help you plan for the change and transition smoothly into the next stage of your life.
1. Be honest about why you want to change careers
Take an honest look at why you want to make such a wonderful change in your life before making the leap. Ask yourself:
- Do you have a passion for another industry or profession?
- Are you dissatisfied with your current work environment? Is it too stressful? Toxic company culture? Unbearable head or management?
- Are you looking for a higher paying profession?
- Would you like to improve your lifestyle, such as reducing commute time or spending more time for yourself and your family?
Finding out the “why” before making a major career change can help you target the right industry, types of employers, and roles in your job search.
2. Find ways to rotate on an axis
Depending on the type of change you seek, you may be able to seize a new test drive opportunity by pivoting. Before diving in, brainstorm options to advance your career:
- Can you change your current position without changing jobs?
- Does changing professions include starting a small business or being self-employed?
You can make a low-risk transition by working part-time in your current career to working at your new job simultaneously, taking night or weekend classes, and seeking advice from people who have made similar career changes. This way, you will have time to explore whether you like your new career while enjoying a safety net for staying in your current job.
3. Check your budget
When criticism is constant, you may confuse your “wants” with “needs.” However, it is crucial to focus on needs and reduce spending on desires when changing professions.
If you haven’t looked at your budget in a while, get a stock of money – calculate your net worth and determine which cash you can quickly access. Consider basic spending, such as a mortgage or rent payments, for things you can cancel or stop doing to save money.
Select the subscriptions and other recurring costs that you can cancel or go back to. For example, if your credit card charges an annual fee, ask to switch to a no-fee card. Reduce your food bills by learning to cook or prepare meals at home. Take advantage of online classifieds to sell unnecessary items that take up space or buy things you need at a discount.
While cutting costs, set aside the money you save in a savings account. Creating a financial safety net gives you options. In addition, it is easier to make decisions based on what you want out of life and not what brings money to pay the bills this month.
4. Create a health insurance plan
According to an analysis of the Census Bureau’s American Community Survey conducted by the Kaiser Family Foundation, nearly half of Americans get health insurance coverage from their employer.
If you fall into this category, create a health insurance plan to fill the void until your new employer’s coverage begins. You may have the option of continuing your coverage through COBRA, obtaining coverage under your partner’s plan, or finding an insurance policy at Health Insurance Marketplace at Healthcare.gov.
5. Leave your retirement accounts
While raiding a 401(k) to fund a new business or career is tempting, it can hurt you. Early withdrawals result in an early distribution penalty of 10% if you are under 59°C. You will also pay income tax on the money you make.
But most importantly, withdrawing your retirement accounts hinders your ability to fund your retirement. When you take out your 401(k) prematurely, you lose the compound interest and stock growth you would have earned.
6. Earn new credentials
Many people who change jobs choose to go back to school to earn certificates or another degree. Training and new credentials can enhance your job options and give you a step up when applying for new jobs. But first, consider whether you:
- Need money to fund those expenses?
- Do you have enough savings? How long can your savings last until you run out?
- Can you live off your partner’s income while you’re rehearsing for a new profession?
- Can I qualify for scholarships or special programs for experienced workers?
Education is not always necessary to change professions. You may find a way to skip the expenses, connect with other professionals, and get a job you love.
7. Prepare to return to the labor market
If you have taken time off to re-educate yourself in your new career, consider your employment opportunities once you complete your education.
You may need to hold an entry-level position to get started. When switching jobs, some fields may allow you to move to a level similar to the level you had at your previous job, but others do not. For example, doctors, nurse practitioners, and other health care providers may ask you to first start out as an intern.
Saving money up front for a job change can help supplement a lower starting salary. But in the long run, your new career may have even stronger growth potential.
Consider potential scenarios and sources of income and expenses when planning a career change. Changing professions can lead to financial insecurity if you do not plan properly. A CFP® specialist can help you prepare and plan for your career change. Besides these seven strategies, they can reveal additional ideas to consider based on your circumstances.
CEO of Blue Ocean Global Wealth
Margarita M. Cheng is CEO of Blue Ocean Global Wealth. She is a CFP® Professional, Certified Retirement Planning Consultant, Certified Retirement Income Professional, and Certified Divorce Financial Analyst. It helps educate the public, policy makers, and the media about the benefits of efficient and ethical financial planning.