Typically, job changes happen in one of two ways – either by choice or by force. Whether you’re looking for a new job, retiring or facing a corporate layoff, prepare your finances for the transition.
“Managing a career transition can be one of the most important financial events of a person’s life,” says Winnie Sun, Managing Director and Founding Partner of Sun Group Wealth Partners, in her LinkedIn course, Managing Your Finances Through a Career Transition. “Things might seem uncertain right now. But once you have a plan set for your financial future, you can gain confidence.”
Creating a financial plan that guides you through your career transition doesn’t have to be complicated. Just take small steps toward your financial goals each day. Here are 5 money management tips to prepare you for a smooth career transition.
1. Take an inventory of your financial assets.
Even if you have a money manager, it’s a good practice to keep a watchful eye on your assets. That way, you can make decisions based on facts and your actual financial portfolio – not what you think you have or may have in the future.
Your assets may include:
- Retirement Accounts
- Checking/Savings Accounts
- Money Market Accounts
- Home Equity Line of Credit Accounts
- Real Estate
- Business Revenue
“To get through this phase successfully, we need to map out what money is coming in and what money is going out,” says Winnie. “The key here is to be honest with what you truly need.”
2. Change your spending habits and reduce expenses.
As soon as you know that your income will be reduced, it’s time to change your spending habits and reduce expenses. If not, you will experience a financial shortfall – sooner or later.
“You may find that you need to reduce your monthly expenses. Remember, this is temporary until you find a new job,” said Winnie. “And with a new job comes new income.”
It can be tempting to continue to live your employment lifestyle during a career transition. Especially if you are used to shopping, dining and vacationing with your high-earning friends. Resist this urge until you have a consistent source of income again.
Ways to reduce your expenses include:
- Eliminate unnecessary subscriptions.
- Prepare most of your meals at home.
- Sell an extra car if you have one.
- Downsize your home.
- Consolidate your debt.
- Reduce insurance premiums.
- Plan your meals.
- Shop with a grocery list.
- Pay off or pay down credit card debt before you leave your job.
In your current position, you may be a high-earner with lots of money in the bank. That doesn’t mean you should spend your money frivolously. Prioritize saving as much of your money as possible.
3. Make plans for your retirement accounts.
After you separate from your job, you’ll have to decide what to do with your retirement accounts. In many instances, there are a few options.
Option 1: Keep the retirement account with your previous employer.
Option 2: Roll over your 401(k) to an Individual Retirement Account (IRA).
Option 3: Transfer your retirement money to an account with your new employer.
Option 4: Withdraw the money. (This is the least desirable option due to unfavorable tax consequences.)
“It’s best not to touch your retirement accounts prior to true retirement age. If you’re younger than age 59½, your traditional 401(k) or IRA would be a last resort,” said Winnie.
4. Find transitional work until you get a new job.
From executives to associates, there are plenty of transitional work opportunities available for people on all rungs of the career ladder. But you must be open to the idea of taking on transitional work until you find your ‘dream job’.
If you’ve been laid off from a high-profile position, taking a transitional job can seem like you aren’t making progress in your career. However, there are a few benefits to consider.
A transitional job can provide you with additional income. That way, you won’t deplete your savings accounts during this uncertain time.
Another benefit is you can meet key players in your target industry. Building relationships with new people can help you find positions that may not be advertised on job boards.
Having a transitional job can provide you with a sense of purpose. Getting dressed for work each day and engaging in a new opportunity can increase productivity. This can reduce the feelings of frustration that often accompany a stressful job search.
You can market your skills to businesses as an independent contractor and create your own transitional work. Here are just a few things you can do.
- Become a consultant.
- Review legal contracts.
- Become an on demand virtual lawyer.
- Start a business in another industry.
- Teach courses to prepare students for the LSAT or Bar Exam.
- Become a contributor for a local/national television program or publication.
“Empower yourself during your job transition,” says Winnie. “Empower yourself even when you have obtained a new job. You could take an online course to master another skill that could create more income, a job promotion and more.”
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