Preparing Your Finances for a Career Change

We’ve all heard the saying, “do what you love, and you’ll never work a day in your life.”

If you ask me, this adage is rather ambiguous, but I’m not here to criticize; I’m here to provide advice. At the end of the day, we all desire to have a fulfilling career that we love — a career that makes us want to get up and go to work every morning. Some people have already found jobs they genuinely love, while others are dissatisfied with their career choices and may be contemplating a change.

Going into a new industry or field of study should be exciting and revitalizing; however, once you have decided on the new career path you are going to pursue, it’s imperative to pause and think about the costs associated with that pursuit. By understanding the full financial impact of your new career move, you will be able to develop a solid budget and cash flow plan to supplement any necessary expenses. Here are a few specific questions you should consider.

Prep Finances Career Change - Lund

What are the potential costs?

When you are preparing for the costs associated with a career change, you must determine whether your new venture will require you to earn a new degree or credential. If you do need to pursue a new degree, the total cost of your career change will include tuition and books. If you are relocating to attend school, you’ll also need to add on the cost of living in a new area. The cost of tuition may vary dramatically, depending on the type of degree you are pursuing, as well as the prestige of the program. According to the website MBA Programs, the average cost of tuition for a Master of Business Administration (M.B.A.) program is about $50,000 per year or $80,000 for a full, two-year program.

If you are pursuing a new credential or designation that requires you to pass an exam, you not only need to consider the exam fee itself, but also the cost of any exam preparation courses you may need to take, as well as any membership fees that are required after you attain the designation.

In addition to the cost of education, it is important to consider the benefits you receive from your current employer, and how those may be affected by a potential career change or schooling. For example, if you have good health insurance coverage with your current employer, what is the cost of continuing that coverage under COBRA (employer-sponsored health insurance coverage that you can receive for up to 18 months after you separate from service)? If your employer has been contributing to your 401(k) plan, what percentage of the contributions could you lose due to the plan’s vesting schedule?

On the other hand, if you are transitioning to a new job that doesn’t require any additional, external education, the costs that come with the transition may not be as clear as the cost(s) of acquiring a new degree. The following are some important questions to consider if you decide to enter a new role that doesn’t require you to go back to school:

1. How much is your income going to change?

2. If you are married, will your spouse’s income be impacted by the transition?

3. If you are relocating for the new position, is the cost of living similar to where you currently reside?

4. What are your anticipated moving costs?

Trying to estimate how your living expenses will change in a new city can be complicated; fortunately, there are numerous online calculators available to help guide you, like this one provided by CNN Money.

What are my resources when it comes to funding educational costs?

There are a multitude of resources available to help subsidize the cost of going back to school, from financial aid to private loans to educational tax credits and tax deductions. First, you should consider filling out and submitting a Free Application for Federal Student Aid (FAFSA). By submitting a FAFSA, you could qualify for various degrees of financial assistance, including grants, scholarships and federally subsidized student loans. While much of the assistance offered through FAFSA is based on financial need, you should still consider submitting an application. Any funding is good funding!

If you are pursuing a new degree to transfer to a different field with the same employer, find out what educational assistance programs your company offers, if any. For 2016, you can exclude up to $5,250 of employer-provided educational assistance from your gross income during a calendar year.1 By researching and determining what outside funding may be available, you’ll have a clearer sense of what funds you need to come up with on your own.

Once you know what funding is available, then you can turn to your own income and savings to supplement the costs. If you are certain you want or need to go back to school, but have minimal cash savings earmarked for it, you may choose to draw back on any income deferrals you’re making to your 401(k) plan or other employer-sponsored retirement plan, and redirect those assets to a regular savings or checking account. That way, you’ll have full access to the funds if you need to make withdrawals for school-related expenses.

Obviously, every situation is different; in general, it is very difficult to withdraw funds out of employer-sponsored retirement accounts without incurring taxes and/or penalties. And while loans from your 401(k) plan may be available, that shouldn’t be your first route when it comes to funding. Before you decide to reduce your contribution or withdraw from your 401(k) assets, it is prudent to seek the help of a financial advisor to make sure that option makes sense for your situation.

If you don’t need or want to acquire any additional education for your new career, there are still a few considerations you should keep in mind when starting your job search: for instance, you may want to take advantage of any remaining paid time off (PTO) days at your current employer, especially if you won’t get paid out for them when you leave. In some instances, expenses related to job hunting may be tax-deductible if you are seeking work within same field.

A few final thoughts

If you are just starting to think about changing careers or are in the early stages of preparation, this may seem like a laundry list of options to consider. As with many important, life-changing decisions (especially those that can impact your financial situation), it is valuable to consult with your financial advisor prior to taking the leap.

Once you’ve set your sights on your next move and have fully evaluated and prepared for the costs, you should feel much more confident (and excited) to embark on this new adventure. Happy job hunting!

 

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Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Marshall Lund
Marshall Lund

CFP® | Financial Advisor

Marshall Lund, CFP®, is a Financial Advisor with Wipfli Hewins Investment Advisors in Milwaukee, WI. Marshall focuses on personal financial planning and investment advisory for high-net-worth investors and families; he also specializes in college education planning.

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Preparing Your Finances for a Career Change

time to read: 5 min