How to Afford a Career Change: 7 Things to Consider

Dec 19, 2022 3 min read

In most cases, the longer you work in a specific job or field, the more you earn. So what happens if you decide to change course? If you’re considering a career shift or quitting your job to start a business, it's important to think through how a career change will impact your finances and what you can do to prepare your finances to ensure the change doesn’t throw you off course.

How to Prepare for a Career Change

  1. Establish a Safety Net

    Having an emergency fund is always important, but it is even more important if you’re financing a career change. If you quit your current job before you have something else lined up or if you are leaving behind a regular paycheck to start a business, you’ll likely lean heavily on savings for day-to-day expenses. That makes an emergency fund – which you should only access in an emergency, not for these ongoing expenses – extra important. Repair costs or unexpected medical bills can be devastating if you don’t have room in your budget and don’t have incoming funds to help make up for the expenditure.

    Even if you have something else lined up before you leave your current position, changing industries could require a salary reduction for a while, adding difficulty to building up your savings. Make sure your emergency fund is robust before making a change so you can ensure that you’re protected from the unexpected.

  2. Test Out Your New Income

    A career change, especially to an industry in which you have little or no experience, may come with a pay cut. Before making the move, evaluate your budget to see where you have wiggle room. If your new income isn’t enough to meet your financial obligations, you can explore the possibility of an additional income stream. Ultimately, your financial stability is a large piece of the puzzle as you decide how to move forward professionally.

  3. Consider Relocation Costs

    If your new career includes a physical move, you’ll need to take that into account as you budget. It’s likely you’ll have some significant up-front costs for things like a down payment or deposit, movers and new-home setup.

    It’s not just the act of moving that can impact your finances. Some areas have higher housing costs, grocery costs or transportation costs that you need to consider. Do some research and a cost-of-living comparison to see how your current location and the new location match up. Is the housing more expensive? Will you need to purchase a new form of transportation? Sometimes a higher salary isn’t better if the cost-of-living makes that salary feel lower.

  4. Don’t Overlook Insurance Gaps

    Changing jobs may mean new health insurance; if you’re insured by your employer, figure out how you can maintain healthcare coverage during your employment transition. Ask about the benefits at your new job, paying special attention to when your health insurance coverage begins. You may need to go on your spouse’s insurance or COBRA for a time until the insurance at your new place of employment covers you.

  5. Mind Your Retirement Savings

    When you leave a job, you’re entitled to a distribution of your vested balance in your retirement account. That always includes your own contributions and typically any investment earnings from those contributions. It also includes employer contributions and earnings that have met your employer’s vesting schedule. This may be a gradual vesting schedule (such as 20% per year until you reach 100%) or a cliff vesting schedule (in which you are fully vested after a set period of time, such as three years). Be sure you understand your employer’s vesting schedule before you make the decision to leave; you aren’t eligible to take any employer-provided match that doesn’t meet the vesting schedule, so you could be leaving money on the table.

    While it may be tempting to use that sum of money for moving expenses or to treat yourself, the best thing to do with your retirement savings when changing jobs is to roll that money into a new retirement savings account. Using it for anything else comes with tax consequences and potentially a penalty. You can complete a 401(k) rollover so that money continues to work for your future, whether that’s in your new employer’s 401(k) plan or an IRA.

  6. Pay Attention to Timing on New Loans

    Lenders like to see stable job history in the same industry that matches your qualifications; if you’re looking to change careers or move industries, you might want to consider the impact that could have on any loan applications. For example, an industry change or leaving an employer to start your own business may throw a wrench into a mortgage application and make it more difficult for you to buy a house.

  7. Seek External Support

    Your career is funding your future, and the last thing you want to do with a change is put that future at risk. Talk to a professional – like a Farm Bureau financial advisor – about a personal financial plan to help you stay on track to reach your goals.  

Want to learn more?

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