I recently made a major career change. I used to design satellite telescopes, including the James Webb Space Telescope that launched in December.
Back in 2018, on the side, I started a blog called The Best Interest. I wanted to understand more about personal finance and investing. I decided the best way to approach it was to essentially learn in public and chronicle my experience along the way.
But what I discovered is that I love helping people achieve their financial goals. So in 2021, I took a huge leap and changed careers to follow my passion.
I'm now working at a fiduciary RIA and studying for my Certified Financial Planner designation. Now I get to spend my time focused on helping people and their finances, and I wouldn't have it any other way.
But the career change itself required significant financial planning on my part. Here are the biggest financial considerations that went into taking the leap.
With my job change, I took a pay cut in the short term. This meant that I needed to revise my budget to account for it. I'm saving less than I was before, and I pushed a couple of near-term goals, like moving to a new house, into the future.
But here's what's important. All of my monthly expenditures and bills are covered. And I'm still saving and investing money for the long-term, even if I am not contributing the same amount as I was before, for the time being.
With my budget, I'm spending less than I earn and investing the rest. And I know that my long-term potential earnings are higher.
One of the things that has helped me during this time is a plan I put together called the financial order of operations. It's essentially a flow chart that takes some of the guesswork out of how to tackle various money decisions. Breaking it down into simple steps makes it less likely that I will feel overwhelmed.
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Whenever you are making a career move, even if you aren't changing industries, it's a good practice to make sure you understand what is available to you when it comes to health insurance, the type of coverage you have, and how much it will cost.
Fortunately, my prior and current health insurance plans are close to equivalent. I'm spending about the same every month as before, and receiving the same level of coverage. But health insurance isn't the only benefit to explore and potentially negotiate when starting a new role.
Depending on what your employer offers, you may have things like commuter benefits, tuition reimbursement, and professional development that your company could cover, which could save you thousands of dollars in the long run if you know how to take advantage of them.
I timed my career change so I could start in the New Year. This timing allowed me to utilize all my benefits at my old job. Many benefits recycle on specific dates, January 1 being the most common. And, for what it's worth, it also gave me a clean break between tax years.
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Location is also a major factor if you are changing careers. If you are moving, it isn't just monthly housing costs you'll need to account for, but the cost of the move, and expenses like a moving truck or service.
Some companies will offer a relocation package to reimburse you, so it never hurts to ask what your options are.
And when it comes to budgeting for a new place, I'm a fan of the data provided by Numbeo to compare the cost of living between locations.
Even if you're not moving, it's important to consider your new cost of commuting. Driving costs can run you about 50 cents per mile on average. If your new job adds 20 miles onto your daily roundtrip, that's $10 a day, $50 a week, or $2,000 per year. That's money worth considering.
I stayed local and didn't have to move. But my new commute is about 15 miles longer per day. It's not much, but it will add up over the years, and I made sure to account for that in my financial plan.
When changing jobs and careers, it's a good practice to compare retirement plans. A few questions you can ask are: What kind of accounts do you have access to, like a 401(k), 403(b), or an IRA? What, if any, are the fees attached to those plans? What are the investment options within those plans?
If you can, I would take advantage of an employer match if your company offers it. Personally, I'm still maxing out my 401(k) to get my full employer match because it is free money in my pocket and invested for my future.
As for what to do with your old retirement plan, there are a few options you can explore. You could roll it over into your new employer's plan, for better consolidation, or because it's a better plan. Or you could also roll it over into an IRA that you can manage on your own, not part of anyone else's plan, which is what I am planning to do.
If you are unsure, it never hurts to consult a trusted financial advisor.
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Keep in mind that changing jobs or careers can affect how you handle your taxes, for a couple of reasons.
I was able to stay local, but if your new job is in a different state, it's important to be aware that the amount of income tax you are paying could change. I would also be mindful of your new tax bracket when changing jobs mid-year. If your new employer makes an error on your tax withholding amount, it might lead to a big surprise come tax season.
To make sure that the withholding is correct, I'd speak with your human resources department. There might be a resident tax expert who can help you out. But if not, seek out an accountant or tax professional.
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Another big question to ask yourself is, will your new job require new stuff to go with it? This could be anything from different equipment, a new wardrobe, or a change in vehicle. Some items might not be supplied by your employer, so this is something to account for in your budget.
For example, as an engineer, I wore jeans and t-shirts most of the time. But now working in wealth management, I'm in slacks and a jacket most days. Personally, I like dressing up a bit more. But updating my wardrobe did cost some money, about $750 for the new office wear.
I quit my old job in mid-December. Combined with Christmas, I had three weeks off. It was the perfect period to reboot, recharge, and start fresh. But I also planned meticulously to ensure I had savings to cover those three weeks with no paycheck coming in. I know that I spend about $3,500 per month, so I earmarked $3,000 to cover my time between jobs.
If you want to give yourself a little lead time between leaving your old job and starting the new one, I'd recommend setting aside sufficient funds to float you during this period. If you want to take some more time off, and you are able to take more of a personal sabbatical between jobs, that's great, but it is important to organize your finances accordingly.
I'm ecstatic that I was able to make this career change. I couldn't be more excited to now be helping people plan for retirement and meet their financial goals. Thankfully, these steps helped me make the transition while maintaining a strong financial foundation.
Jesse Cramer is the founder of The Best Interest, a personal finance blog. After seven years working as an aerospace engineer, he now works for a fiduciary registered investment advisor in Rochester, NY, where he lives with his fiancee and their foster dogs.
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