Can You Afford to Change Your Career?

Who wouldn’t want a meaningful career and better balance between work and home? For many of us, it’s finances that keep us from making a career change. Sure, our current job has lost its spark, but it’s stable. Dependable. Reliable. Steady. We worry and wonder: What would a career change do to our bank accounts? To our way of life? To our family? We assume that a major reinvention would involve a gap between paychecks when we’d leave our job and break into a new field. Sometimes we think (or we know) that the career we’d love would fill our days with more meaning but pay us less (significantly less, even).

Take Steve. A well-respected HR manager in the public sector, leading his own recruitment team and earning a decent salary. Or Amanda, an elementary school teacher in the inner city with 11 years under her belt. Or Brandon, a rising star at a large, well-known nonprofit organization. Those who know these three individuals would likely have characterized their careers as successful. But Steve, Amanda, and Brandon all left those jobs and made a mid-career transition.

What drove them to abandon established careers, steady incomes, and security? For Steve, it was a desire to find meaningful work. Although he was doing well and liked his team and his company, he felt that his workdays alternated between feeling every minute tick by and putting out fires. While the pay was good, he felt that his role didn’t have a deeper purpose. His heart wasn’t in it.

Amanda found the instructional part of her job extremely fulfilling, but she was discouraged by paperwork and trying to “teach to the test.” She noted, “I was only teaching 30% of the time, and the rest I was filling out forms.” Gradually her frustration with these aspects of her job mounted, and she became burned out.

Brandon took the leap and left his stable nonprofit job to seek a better work-life balance. He wasn’t intending to change his career until a conversation with his young daughter revealed that she felt as though he worked too much and spent too little time with her. While he was making significant improvements to his organization’s way of doing business, the 80-hour weeks were wrecking his home life. He had to make a change.

Like Steve, Amanda, and Brandon, we’re all drawn to career change for different reasons. But for many of us, worry about the potential financial risk in such a change turns into a roadblock we never surmount. While every situation is different, here are some factors to consider that may help reduce your financial concerns and make a radical move feel more achievable.

Try Living on Your New Income

If you’re worried that your new job will pay less, test out your estimated salary. Figure out what you expect to earn, and live on that for two to four months. Better yet, live on less than you expect to earn. This will give you a realistic picture of what life would look like, from an income perspective, in your new career. For starters, review your budget to see where your current income is going. If you don’t already have a budget, take a look at the past six months of your credit card bills, checkbook, and debit card logs to see where you’ve been spending. Once you have a budget in place, go over your expenses — both fixed and discretionary — to see where you could trim. How much should you cut back? That depends on the anticipated size of your income reduction. If your new career would pay you 90% of what you make in your current gig, then you can probably manage the transition by reducing what you spend on groceries, canceling your cable TV service, or forgoing meals out. If your new career will result in a sizable pay cut, you’ll need to be more aggressive. Look at your major spending categories to identify cost-saving opportunities. Are there more-affordable housing options in your area? Can you cut your commuting costs by using public transportation? While you may be reluctant to take such drastic steps for an experiment, use this period to explore alternatives and assess the impact of making changes. Say you want to downsize your home to reduce your monthly payment. How feasible is it to find cheaper housing in your area? If the real estate market where you live is down, it could be difficult to get out of your current home.

When Amanda planned to quit her teaching job, she knew the move to working part-time at a nonprofit would come with an approximate $30,000 reduction in her salary, based on an exploratory meeting she’d had with the organization’s leader. Amanda was pregnant but planned to go back to work part-time immediately following her daughter’s birth. However, complications during her pregnancy forced her to take an extended period of strict bed rest. Her teaching benefits didn’t cover short-term disability. She could not work; she did not earn an income. “This accidental trial run was rough, and we had to watch every penny…but it showed us that we could make it on less money,” she reported. Though Amanda didn’t choose the timing or duration of her trial run, you can map out an intentional reduced budget for a set period of time to get a realistic picture of what life might be like if you earn less.

At the end of your trial, revisit your budget or your banking statements to see how you did. What was the resulting impact on what you have saved — and what you owe? How did it feel? Are you willing to make those cutbacks more permanent? Take this opportunity to scrutinize your spending to see if there are additional expenses, like Netflix and Amazon Prime memberships, that could be eliminated.

Create an Emergency Fund

What if something unexpected happens in your new career? Or what if you can’t sell your home? Building or adding to an existing emergency fund will help ease the stress and worry of beginning a new career. A good rule of thumb is to have three to six months of living expenses saved up. While this advice is somewhat standard among financial advisers, aim for the higher end of that spectrum to give you some breathing room, just in case your transition doesn’t go as planned. The more financial cushion you have, the more time you can take to find another job if it comes to that.

How can you build an emergency fund? For starters, you could earmark your income tax return or yearly bonus. As you try out your new salary, take the dollars per month you’ve cut from your expenses as part of your experiment and add it to your emergency fund. Or extend your trial run and choose to live frugally for a longer period so that you can stash away more cash. Steve and his wife chose that option to save money before he returned to graduate school. In addition to the usual cost-saving measures, they sold one of their cars and shared one car between them. This not only got rid of a monthly car payment but also cut down on what they spent on gas, insurance, and maintenance. Your adventure into frugal living might look like Steve’s, or you might cut costs elsewhere. If you’re driving a vehicle with a high monthly payment, can you trade it in for something cheaper? Can you limit discretionary expenses (coffee, subscriptions, memberships)? Can you think outside the box and consider far-reaching ways you could save money? Maybe you could adopt a minimalist wardrobe, with a few essential, interchangeable, easy-care pieces. Doing so would allow you to reduce your clothing allowance and curb your dry-cleaning bills.

Of course, living frugally requires a lot of motivation. It sounds dreadful. It can feel dreadful. Focusing on why you’re making these cuts can help. You’re scrimping to have the career you desire instead of a job that simply pays the bills. Tap your support system for ideas to save — and to cope. And be sure to reward yourself once in a while. Celebrate your successes. For every $1,000 saved toward your emergency fund, treat yourself to something nice (but reasonable), like a dinner out.

Assess Your Household’s Risk Tolerance

How do you feel about risk? How does your spouse feel about it? Everyone’s tolerance for risk is different. Take Brandon. He considers himself risk-averse, so when he made the move from nonprofit leadership to starting his own business, he did so with caution. He built up his emergency cushion by pulling his child out of day care and keeping her at home with him. Once he’d launched his business, he continued to mitigate risk by being extremely selective in which clients he took on. To provide a level of job security and predictable income, Brandon contracted only with organizations that would let him manage their conferences for two or more years. Likewise, Margaret, a single mother of two who is admittedly risk-averse, didn’t transition from tenure-track college instructor to HR consultant until she found a job with the salary she needed. Had the money not been right, she would not have made the move. She knew her budget and her risk tolerance; she did not have a partner’s salary or health insurance to fall back on. She wasn’t willing to compromise or to put her family in a bad spot just to make the change.

Assessing how comfortable you are with risk will help you see which choices are good for you — and which ones you should leave on the table. Quantify your level of risk tolerance by taking one of the many self-assessments you can find online, such as the financial risk tolerance questionnaire developed by Virginia Tech’s Ruth Lytton and the University of Georgia’s John Grable. If your risk tolerance is fairly low but your proposed career change is one that will reduce your income by 75%, then you’ll probably want to rethink your choice. On the other hand, if a questionnaire suggests you have a high tolerance for risk, a drastic reduction in salary may not be a deterrent for you.

Create a Backup Plan

Knowing how you feel about risk will also give you a sense of how solid your backup plan should be. If you’re highly cautious about change, reduce your stress by fleshing out a Plan B (and C and D, if necessary). Take all of the reflecting and imagining you did to get to where you are, and use it to consider what you might do if your new gig doesn’t work out. Steve, Amanda, and Brandon all had working spouses whose income provided a safety net during their career transitions. Beyond that, all three noted that their extended families had offered financial assistance if necessary. Beyond money, Steve, Amanda, and Brandon maintained their relationships with colleagues in their prior workplaces and industries. Knowing that they existed and could be tapped into in the event that they needed to return to their old field provided some reassurance.

In addition to maintaining ties with former colleagues in your network, stay abreast of what’s happening in your old industry. If you’re leaving the mortgage loan field, keep up with regulations and policies that govern that area. Or if you’re leaving an industry that requires a certification (such as a CPA), maintain any licenses or credentials until you’re entrenched in your new career. You’ll mitigate your stress and risk during the transition and give yourself a greater opportunity to return to your former industry should you need to.

Manage Expectations

Check in with your family members to discuss the implication of your change on their lives. These conversations should focus on schedule adjustments, income variances, and spending habits that will make the transition a success. Setting expectations for what your new life will look like — especially financially — will leave less room for surprises and disappointment once income levels change. Steve, Amanda, and Brandon all had multiple conversations with their spouses over time before they switched careers. Amanda and her husband were accustomed to dining out a few times per week while she was employed as a teacher. So they talked about discretionary spending they’d eliminate — meals out — in order to live on the reduced income her career transition would entail. When she changed jobs, and dining out became a rare treat instead of a regular occurrence, it took getting used to, but no one was caught off guard.