Financial Issues to consider before Changing Careers
Changing your career is a big move. While the right career is about much more than the salary and benefits, everybody works to earn an income, and when you are considering changing what you do, it is important to look at the financial implications of any proposed change.
Planning a career change is vital, and a big part of this will be focused on the financial side of the move. It is always advisable to consult a financial adviser before making any such life-changing decisions, but before you do that, it is worth considering the following areas that a second career could impact upon.
Will your income cover your cost of living now and in the future?
Many people change careers because they do not feel their current role pays as much as they would like. Others change careers because they are unhappy with aspects of their current role. In either case, planning your income based on your existing and future financial commitments is vital. A career change can impact your income in different ways. In the short-term, the break in roles may lead to a period when your income drops, even for just one or two months. You may be looking for a career change that will require one or two years of experience before you can match or exceed your current income. You must relate this to your existing financial commitments and savings, establishing that you can manage comfortably throughout any affected period. Charles Schwab outlines some great advice forfinancial planningon the Moneywise website.
What is the likely impact on your pension and other benefits?
Your pension is a critical financial consideration throughout your career. At all times, you should ensure that you are contributing in a way that is tax-efficient and supports your retirement as much as possible. This is a specialist area, and professional financial advice should be sought. Understanding whether you are vested, for example, could cost or save you tens of thousands of dollars in your later retirement benefits. As highlighted on the Financial Plan website, you also need to consider whether you roll over anexisting retirement accountinto an IRA. Only a specialist can help you plan for this, but understanding your current retirement position is a crucial step before considering how to review this.
What are the tax implications of your new career?
Tax laws tend to be very complicated, and a change of career could see your tax liability change considerably. Even if you are simply moving from one employer to another, your new salary may fall into a new tax band, which could decrease your overall income by a significant amount. Similarly, if you are moving from being employed to self-employed, your tax situation is likely to change significantly. Remember that if you are married, then your tax liability may well be impacted by your spouse's tax status too. This is another area for specialist advice, but theIRS websiteprovides guidance on the key areas to think about.
Are there any immediate financial commitments and do you have the funds to cover them?
According to the nature of your new career, you may be obliged to make immediate purchases that will equip you to carry out the new job. This could range from equipment to premises, specific tools and apparatus or training and development. Some of these requirements may be compulsory by law, and you may have to provide evidence that you have fulfilled them before you start work. Research specific industries online to establish any legal or regulatory requirements, and establish details with your new employer, as required.
Are you inheriting any new liabilities and do you therefore need insurance?
Insurance exists to protect you against a host of different risks. Some forms of insurance are desirable to have, whereas others are compulsory. If you are going to practice medicine or veterinary science, for example, then comprehensive liability insurance is required before you can undertake any such role. Some of these insurances can be quite expensive, and you should establish what the premiums will cost based on your personal circumstances. Establish who will be liable to pay the costs, according to your new contractual arrangements.
Financial planning is a critical activity to undertake at any stage in your career, and indeed throughout your working life. If you are considering changing your career, however, then a full review of your financial circumstances is extremely important indeed, and needs to be completed before you can make any final decisions.
