Key Takeaways
- Review your financial situation and set aside a rainy day fund before you change your career in mid-life.
- Consider how a career change will impact your financial life and adjust your spending accordingly.
- Reassess your investment risk and consider any career offerings through your employer.
You may have different reasons to make a career change mid-life. Maybe you’re seeking new professional challenges or you want to achieve a better work/life balance. You could be looking for more financial stability or perhaps you’re following shifts in the economy. Whatever the reason, make sure you have a solid plan in place so you don’t impact your financial situation or your retirement nest egg, including having a rainy day fund and downsizing.
1. Understand Your Current Financial Situation
Anytime you make a life change, including a career change (especially in the middle of your life), make sure you do a thorough analysis of your financial situation. This includes running through your:
- Monthly income (make sure you include any regular income sources)
- Expenses, including things like car insurance (if you drive), how much you spend on entertainment and groceries, and other living expenses
- Investments
- Debts
Listing all of these can help you make an accurate budget. It can also give you a better idea of where you stand financially if there’s a temporary lapse in income when you jump from your current career to the next.
Tip
If you're partnered, don't forget to include their information on your list so you can make a more informed decision.
2. Build an Emergency Fund
An emergency fund is cash that you set aside in a checking or savings account for a rainy day. This money is meant to cover financial emergencies or unexpected expenses, or to pay for your monthly expenses when you experience unforeseen circumstances, such as a job loss.
So how much should you save? That depends on the circumstances, according to Vanguard. Consider saving half a month's worth of your living expenses for unplanned expenses. But if you're planning for income disruptions, save three to six months' worth of your salary. In this case, you should save the latter option.
3. Be Aware of the Financial Impact of a Career Change
Make a conscious effort to review how a career change may impact your monthly income. While earning a higher salary isn’t anything to worry about, ask yourself whether you’d be willing to take a lower salary as part of your career change and whether you’d be able to handle that hit to your budget.
In some cases, it may be worth it, especially if your new career or job comes with certain perks. Some employers may offer fully paid or low-cost health care plans, transportation reimbursements, retirement plans with (higher) employer matches, or other benefits. These perks often make up for a drop in monthly income.
Speaking of your employer-sponsored retirement plan, you may have to decide what to do about your current plan if you have one. You could roll it over (you’ll likely have to if the balance is too small) to the new plan administrator or leave it where it is if you have a sufficient balance. You also have the option to roll it over to an individual retirement account (IRA). Check out Investopedia’s list of robo-advisors if you need help setting up an IRA to make your 401(k) transfer.
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4. Spend Wisely
As you make the transition from your current career to the next, consider how you spend your money. Think about ways to maximize your dollars by identifying your needs and wants. Needs are expenses that are essential to your survival, including housing (rent or mortgage payments), utilities, food, health care, transportation, insurance, and required clothing.
Wants are discretionary expenses you can normally live without. Entertainment, dining out, streaming services, vacations, luxury items, and clothing beyond your necessary wardrobe are considered wants.
Can you cut spending? Maybe you can stop buying that morning coffee or cut back on buying lunch every day. Making small sacrifices can help you save money to justify the career switch and potential salary drop. Along with financial downsizing, consider reducing your living space. This makes sense when you want to save, your kids leave home, or you simply want a lifestyle change.
Important
You can get financial help for free through your bank, employer, or 401(k) provider.
5. Reduce Risk in Your Investments
Consider reassessing your investment strategy and risk tolerance. This is the amount of risk that you’re willing to take on with your investments. Making a change at this time may impact your income, but since you’re mid-career, you’re probably a little older. So it’s a good time to do a reset anyway.
The older you get, the less risk you’re able to tolerate, so you’ll want to build financial security and preserve your capital. There are a few ways you can do this:
- Reduce your exposure to volatile investments, such as stocks, and consider low-risk vehicles like annuities, bonds, and real estate investment trusts (REITs).
- Liquid investments, including certificates of deposit (CDs) and U.S. Treasury securities, can guarantee you returns.
- Target-date funds adjust their asset allocation over time until your target retirement date with a diversified retirement portfolio.
Speak to a financial advisor to help you. Or, if you’re financially savvy and don’t already have a brokerage account (or just need to switch), consider opening one with one of Investopedia’s top online brokers.
6. Maximize Your Current Employer’s Offerings Until You Leave
There may be ways for you to make your career change without too much of a disruption. You may get help through an employer-subsidized transition program, reimbursement, on-the-job training, or reskilling program. These programs allow you to advance your career in new areas and stay with your current employer. You may also want to consider taking advantage of internal job postings or, if possible, relocating to a different department.
The Bottom Line
Changing your career mid-way through your life can be an exciting step. But it can also be a challenge if you’re not prepared. Coming up with a solid financial plan can smooth out any missteps that may arise along the way.