3 Financial Mistakes to Avoid When Changing Careers
Several years ago, I became dissatisfied with my career as a financial planner. I earned plenty of money, but I was forced to work irregular hours, which limited how often I saw my family. Plus, I'd become disillusioned with Wall Street. I needed a change, so I sacrificed some security for flexibility and became an editor and occasional writer for a personal finance website.
I'm glad I made the move; however, if I had it to do over again, I would have transitioned more gradually and considered more thoroughly how it would impact my finances. If you're considering changing careers, avoid these common mistakes.
1. Not Thoroughly Assessing Your Tax Situation
There are many layers to your finances that could be affected by changing careers. Of course, you've considered the shift in salary, but it's important also to consider how it will affect your tax situation. If you haven't already, ask yourself the following questions:
I, for one, didn't consider that when I gave up financial planning, I'd lose thousands of dollars in deductions. The first year, tax time was quite a surprise for me, and not a pleasant one.
2. Not Becoming Acclimated
Though it may be your dream to move on from an unfulfilling career, don't rush it. An ill-timed career change can wreak havoc on your finances. Once you've thoroughly researched how you'll be affected, create a budget accordingly and implement it. The idea is to get a sense of how your lifestyle will be affected by a career change. If you expect a pay cut, it's one thing to tell yourself you need to cut back on discretionary spending—and an entirely different thing to actually do it.
For example, I targeted a range of small expenses to get acclimated to the budget I expected to have: I eliminated coffee shops from my daily routine, traded sodas and juices for water, packed a lunch to work, reduced dinners out with friends and invited them for potlucks in. I also planned staycations with my family instead of anything involving expensive airfare. It took a little getting used to, but I soon realized that I really didn't sacrifice much.
The point is, try living within the financial means you expect to have before departing from your current career track so you can see what it’s really like.
3. Forgetting the Extra Charges
When it comes to changing careers, there are often a slew of expenses involved, and it can be easy to overlook these. Thoroughly examine what costs you expect to incur in the process of seeking a job, as well as what new costs you can expect once you make the switch. For example:
This is only a small sampling, so really examine what you'll be doing and what is required in your new career in order not to overlook any expenses. One thing I overlooked is that my old, slow computer just wasn't going to work for online editing. It would have been nice to have had more time to budget for a replacement.
Changing careers is exciting, and the period of adjustment is often justified by the opportunities that await. I've found that the time I have with my children now is priceless, as I no longer have to work evening hours and miss out on dinners and homework. But before you make the switch, make sure you understand what you're getting and what you're giving up. Research your new field well, prepare thoroughly, and transition gradually to avoid any unexpected snafus and make the most of your new lifestyle.
What other mistakes can you think to avoid when switching careers?
Holly Mangan is the managing editor of a personal finance resource that delves into topics such as careers, small business, money management, and investing.More from this Author