5 essential steps to afford a career change

You have this job. It’s been going well for a while now, and it’s paying the bills. You’re not overjoyed, but neither are you hating him, so you stayed, working day after day, year after year.

Most of us have been there at one time or another. We all have bills to pay, and we take the first available job with a salary high enough to make ends meet, even if we don’t like that job.

While it’s okay to work for a while, you know the grass is greener on the other side, and eventually you’ll have to change careers to avoid going crazy.

The only problem is that you can’t exactly quit because you still need a paycheck to pay the bills that come in every month, whether you have a job or not.

Avoiding Consumer Debt to Get Rid of Job Chains

The first step you need to take to enable yourself to change careers is to get out of debt, especially high-interest consumer debt. The average person in 13 states borrows more than they earn.

Maybe the only reason you stay at your job is because you need to earn a certain amount monthly to pay the bills. Moving to another less-paying job means you’re going into more debt.

For every $5 an average American earns, $1 goes toward paying down debt. If you earn $50,000 (the average national household income), $10,000 of your salary goes immediately to paying off your debts.

By paying off your credit card balance or car loan, your monthly expenses go down and you suddenly have disposable income that can be invested or put into a savings account. But, more importantly, you can afford to earn less money each month while paying your bills on time.

If you were to take a pay cut and only earn $40,000 a year at your new job, you can because you no longer have those pesky monthly loan payments that force you to earn more to make ends meet.

Build an emergency fund for six months of living expenses

Hopefully you can build an emergency fund while you pay off any loans you may have. Most financial advisors and books will tell you to set aside three to six months of basic living expenses in case you get an unexpected bill or lose your job.

Don’t quit your job unless you have an emergency fund. Could you afford not to have a steady income for nine months?

If you remember the Great Recession, it took the average person three months to find a new job with replaceable income; that is, when your new job pays the same salary as your current job. So don’t think about quitting your job until you’ve saved up at least three months of living expenses. This way, you don’t have to spend time working instead of looking for a job because you left your job prematurely.

Consider replacement insurance options before changing careers

Another expense you might overlook is medical benefits. Non-employer health insurance and COBRA coverage can be expensive if you have an insurance gap between jobs. Therefore, you should factor these costs into your planned monthly budget once you no longer have medical coverage from your current employer.

Tax credits are currently available for medical plans on the Healthcare Exchange. You and your family can also be uninsured for two consecutive months before being subject to the Obamacare penalty.

Generate passive income with taxable accounts

Depending on your age, you may already have a large investment portfolio. In addition to contributing to your 401k or IRA, invest a portion of your salary in a taxable investment account or P2P account to earn stable passive income even if you are not currently earning a salary (active income).

Because you have an emergency fund to dip into in the first place for any unexpected expenses you may encounter during your career change, your investments can remain intact. If for some reason you have to sell your investments to make ends meet, withdrawing from a non-retirement account means you won’t have to pay up to 30% penalties and taxes by making a early withdrawal from your 401k or IRA.

Nurture your personal and professional relationships

The final piece of advice is to maintain your personal and professional relationships as much as possible. The adage “it’s not what you know, it’s who you know” always rings true.

Hundreds, if not thousands, of people could submit resumes for a single job posting. You never know when you might need to call on a friend or colleague or when they might need you, so don’t cut ties if possible. No one can predict the future. In times of personal uncertainty, relationships can be the most valuable thing you own.

Changing careers can be nerve-wracking and you should never quit your job on a whim. By minimizing your expenses and building a cash reserve, you can reduce some of the stress and uncertainty that can come with a career change. Even if it takes you years to finally be ready to say, “I quit!” it’s always better than working your whole life in a job you hate.

About Ellie Cohn

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