Changing careers: What to consider

Thinking through a career change

People change careers for a variety of reasons. Maybe your career goals or values have changed. Maybe you have developed new skills or interests and want to find a way to weave them into your career. Maybe you’ve had a big life change outside of work, like a move or a new child, and want your hours to mesh better with your new lifestyle. Changing careers, while exciting, can also be daunting, especially if it could mean changes for your finances. As you navigate the process of a career change, here are a few tips to keep in mind.

Do your research

If you’re curious about a career change, it’s a good idea to zoom out and learn as much as you can about the potential paths you could take. You may have ideas that aren’t entirely accurate about what it would feel like to work in your dream industry that could change your perspective. Conversely, there might be industries out there that you don’t know about but would thrive in.

If you know people working in a field you are interested in, ask them if they would have time for a quick informational interview or coffee. LinkedIn can be another great tool to connect with people willing to tell you more about a given career path. Even if you don’t know a potential contact very well, you might be surprised by how generous people are with their time and how willing they are to talk about their work. Remember to always pay it forward if someone asks to connect with you about career advice.

Know your worth

Once you have done your research and applied for jobs, you may find yourself in a position to negotiate your salary. When changing careers, it can sometimes be difficult to know what is normal compensation for a new role. Your research and conversations will give you an idea of a fair starting pay rate.

Although you might be in the applicant pool for a new job with people who have more years of experience in a given field, you should have confidence in the skills you have developed in your previous position. Companies are often eager for a fresh perspective, so coming from a different industry can often be seen as a positive in the hiring process.

Dealing with your 401(k) when you change jobs

If you decide to leave a job that provided you with an employer-sponsored qualified retirement plan such as a 401(k), you will need to decide what to do with the assets as you transition to your new job. One option is to leave your assets as-is if your previous job allows it and you are happy with the investment options the plan provides you. Another option is to move your old 401(k) plan assets into your new employer’s plan (if allowed). It’s a good idea to compare the fees and investment options to help make a decision. Finally, you could roll your old 401(k) plan assets into an IRA. This type of tax-advantaged account could have many advantages, including a wider range of investment options and more control over your savings. There are several considerations and different kinds of IRAs, such as Roth IRAs and traditional IRAs.

Update your budget

As you make the transition to a new career, think about how this move will affect your finances as a whole. For instance, if you are transitioning from a career in investment banking to teaching, you will likely have less money coming in. In order to make sure you stay in a good place financially, you could look to cut expenses by downsizing your living space or opting for a less expensive housing option. Even small lifestyle changes, like packing a lunch or riding your bike instead of driving, can have a big impact on your bottom line.

Conversely, if you transition to a career that comes with a pay raise, you may be able to budget more money for housing, transportation and other expenses. However, it is important to avoid what is known as lifestyle creep. Lifestyle creep happens when people are making more money but begin spending more as well, leaving them in the same situation as before, or sometimes even worse.

That’s why this is a good time to meet with an advisor to review your portfolio in light of your new position. Perhaps you are in a position to allocate more money to your investment portfolio or your retirement savings account. Remember to carefully review the risks of your investments before committing more capital.

The bottom line

Changing careers can be rewarding and fun. With some research and planning, you can stay in a good place financially no matter where your career path takes you.

View Disclosures