A career change could be a positive shift on multiple levels. For one thing, it could open the door to a job or field you find more enjoyable and fulfilling. Financially speaking, changing careers could lead to higher pay -- and a host of good things that come from that.
But it's important to be mindful of your money when you're in the process of changing careers. Here are some key financial moves to make during that transition.
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1. Set up a new budget
When you switch careers, you sometimes have to take a step backward salarywise. If that's the case, then it's important to rework your budget to make sure you're not setting yourself up to land in debt.
Comb through your expenses and identify those you're truly locked into, like your mortgage and car payments. From there, allocate your remaining dollars accordingly. You might need to cut back on spending in nonessential categories temporarily as you build up your skills, make connections, and climb the ladder in your new field.
2. Make sure you're prepared with emergency savings
It's important to have a fully loaded emergency fund at all times -- but especially when you're in the process of making a career change. You never know when a given job or path won't pan out the way you expect it to. Having money in the bank could enable you to keep your options open as you learn more about what you want to do.
Also, if you have money invested, a solid emergency fund could ensure that you're not forced to tap your portfolio -- and potentially take a loss -- when a need for money arises.
3. Take your 401(k) along for the ride
If you're changing careers, then chances are you're leaving your old employer behind. But that doesn't mean you should leave your 401(k) plan behind.
You might have the option to leave your retirement savings in your old employer's plan and keep your money invested there. But in doing so, you run the risk of forgetting about that money, which you don't want to do. A better bet might be to roll that money into an IRA that you manage yourself until you settle into a new job that comes with a 401(k).
Even once a new 401(k) becomes available to you, you might find that you prefer to keep your retirement nest egg in an IRA because it gives you more investment choices. IRAs, for example, generally allow you to invest your money in individual stocks. With a 401(k) plan, you might be limited to a number of different funds whose fees are cumbersome and whose investment strategies don't necessarily align all that well with yours.
A career change could be a very positive thing for you no matter how much work experience you have. Be sure to take these important steps while you're in the process of making that change so you're able to avoid debt and can continue working toward your financial goals.
