Switching careers can be an extremely stressful time for you and your family. With career transitions come change and uncertainty. It can be a challenge juggling new career opportunities, developing new skills, and handling financial repercussions. Before you make the move to switch careers, consider how the change will affect your financial situation and how best to prepare. In today’s post, we outline key tips to help make your career transition smooth and successful.
1. Do the Research
When you first begin considering a career transition it’s important to take the time to fully develop a clear strategic plan for your move. Consider what type of position and industry is more appealing to you. Investigate what steps it will take to get there. Talk with people in the field you’re interested in to get their advice for the move. Will the transition be lateral in terms of pay? Or, will it require you to take a pay decrease? Will you need more schooling to develop a certain skill set? Take the time to research the answers to these questions before you make your move. Doing so will position you to switch careers successfully.
2. Build a career transition fund
Additionally, planning in advance allows you to start contributing to a transition fund to ease the financial burden of a career switch. This type of emergency fund can mean the difference in having ample time to pursue a dream position or being forced into a less-than-ideal position to cover the bills. Start putting away money every paycheck to build your transition fund. How much money should you aim to save? We recommend saving enough to cover living expenses for 6 months to a year. Besides covering recurring bills, the fund can be used to cover other career transition costs like personal computers, updated work wardrobes, or other personal marketing materials.
3. Make a plan for handling your company-sponsored 401(k)
If your current company sponsors your 401(k) retirement savings plan, you will need to plan in advance how to efficiently handle the fund when you leave. If you leave the company before moving into another position where a 401(k) is offered, it’s best to move the fund into an IRA, either a traditional or Roth, fund. Doing so will prevent early withdrawal tax penalties and will allow your retirement savings to continue growing during the transition period. Our TrueNorth Wealth financial advisor team can assist in rolling over an existing company 401(k) into a personal IRA.
4. Plan for a health insurance switch
Under current regulations, every U.S. taxpayer is required to have health insurance. If you leave your current employer without securing full-time employment with another company, you will need to purchase private insurance to bridge the coverage gap. While the task of finding individual health insurance can be daunting, there are sites and services that assist in the process. We recommend researching the following organizations and programs:
- Healthcare.gov. The government’s official healthcare marketplace. Search for coverage options for individuals, families, and small businesses.
- Kaiser Family Foundation. The Kaiser Family Foundation provides a searchable database to find individual health care plans, compare plans by premiums or deductibles, and find information on current legislative reforms.
- HealthCompare. This website compares various types of health care plans, like medical, dental, and vision, so users can find the best plan for their situation.
Remember, if you’re married, find out if you’re eligible to join your spouse’s health care plan. This would likely be the easiest way to handle a health care plan switch and will likely offer significant savings financially.
5. Be prepared for your taxes to change
If you take time off between positions and decide to pursue freelance work be sure to understand and plan for accompanying tax considerations. Independent contractors need to carefully set aside money from each paycheck to cover taxes. We suggest opening up a separate account to set aside money from each paycheck for future taxes. This helps contractors be prepared to pay the IRS during tax season. Consider consulting an accountant to know exactly how much money to set aside each paycheck or each quarter to cover required taxes.
Adequate planning and smart financial strategies can ensure career transitions are successful. By utilizing the strategies we’ve outlined above, you can mitigate risk and streamline the process for making important life decisions. For personalized financial guidance and more information on preparing for career transitions, contact TrueNorth Wealth via phone at (801) 980-3507 or through email at firstname.lastname@example.org.
TrueNorth Wealth is a financial and wealth management firm specializing in personalized financial guidance to individuals and businesses. For a free financial consultation contact us today.