As the job market heats up, you may be looking for a career change. However, consider shoring up your financial picture before you change jobs. "Looking at your current and future budget is critical, especially when you’re job hunting," says Denise Winston, a financial educator and author of It’s Your Money.
Doing so helps ensure you’re ready for any job opportunity that comes your way.
1. Examine your financial expenses
Review your current spending and look for places to trim. Also consider the additional costs that may come with a new job offer, such as a longer commute, additional child care or a move to a more expensive city. Knowing your costs allows you to better negotiate for the compensation and benefits package you need.
2. Decrease your debt
In reviewing your expenses, determine what you owe, and focus on paying down that amount. Doing so decreases your monthly expenses and perhaps allows you to consider jobs with a broader range of salaries.
3. Boost your emergency fund
Setting aside savings creates a safety net in case you end up with a gap between jobs. “If you don’t have an emergency fund in this situation, you’re going to be tempted to rely on credit instead,” Winston says. Ideally you should have six to eight months’ worth of expenses saved in cash reserves. Pad your emergency fund with your tax refund, bonuses, overtime wages —even the proceeds of a garage sale.
4. Don’t touch your retirement nest egg
It may be tempting to withdraw the funds from your 401(k) after you leave an employer, but don’t do it, Winston warns. You’ll owe a 10 percent penalty for withdrawing funds early plus income taxes. But there are no penalties for rolling over your 401(k) into your new employer’s plan or into an IRA. Talk to an advisor about your options and retirement goals so your job change benefits you now and in the future.
While changing careers can be exciting, don’t let your finances get lost in the fray. Getting in control now puts you in the driver’s seat and helps make the transition a smooth one.
This content is educational in nature and is not an advertisement for a loan or business solicitation. It does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Whether you’re looking to earn extra income or explore the possibility of starting your own business, a side hustle is a great place to start. Listen to this podcast for your guide to finding your side hustle and making it work.