How much do you need to shift careers?

During the pandemic, you probably had plenty of time to reflect on the kind of job you want for yourself. It may be that you’re trying to find meaningful and purposeful work that gives you a work-life balance.

It’s also possible that you want to get into a job that you’re passionate about, but one thing is standing in the way: your finances. Because of this uncertainty, you believe that it’s okay to stay in your current job even though it lost its spark. You believe it’s okay to stay as long as your current job is stable, dependable, and steady.

It’s common to assume that switching careers would involve a gap between our paychecks, particularly because we would have to risk so much of what we’re used to and leave our old job behind. It’s also common to assume that the career we’re passionate about would pay us less. Indeed, leaving a reliable job for something that we would love but would pay us less could leave us and our families financially vulnerable.

What would drive people to shift careers?

Despite the uncertainties that come with shifting careers, some people still take the leap and make the change. Some look for meaningful work that has a deeper purpose. Most likely, these people find their tedious and mundane jobs exhausting and draining. Other people may have found an aspect of their job fulfilling, but may be discouraged by other aspects, like doing too much paperwork. These things could cause frustration and burnout.

How much do you need to shift careers?

To figure out how much you need to shift careers, you must calculate your average spending for at least the past 3 months. For instance, you might find that over the past three months you spent $9,000, which means your average spending is $3,000. If this is the case, put $3,000 in the total spending line.

Break down your finances per category to help determine where you can cut back on spending. Discretionary and lifestyle expenses are the easiest to change in a short period of time.

Some of the categories you can use:

1. Essential needs – mortgage payments, rent, utilities, groceries, insurance

2. Discretionary expenses – entertainment, dining out, streaming service memberships

3. Lifestyle expenses – vacation, gifts

And then sum it up into total spending.

Next, you can then estimate your new total expenses. This is how you do it: if you are single and have no dependents, multiple your previous total spending by 3. If you are married and have dependents, multiply your previous total spending by 6.

Third, calculate your current savings and liquid assets. Add your checking accounts, savings accounts, and money market and this will be your total liquid assets.

Lastly, subtract your new total spending from your total liquid assets. If the result is positive, then you are ready for a career change.

Tips to keep your finances stable while you shift careers

1. Test out your estimated salary. If you’re worried that your next job will pay less, test out the estimated salary. Figure out the amount you expect to earn and adjust your expenses to that for two to four months. You may also live on less than you expect to earn. This will give you a sense of what your new life will look like if your income changes.

2. Keep an emergency fund. You must create a buffer so that you can focus on applying for the job you want. This will help you avoid getting stressed out. It’s best to have at least three to six months of living expenses saved up.

3. Assess how comfortable you are with risk. Evaluate your household’s risk tolerance. Doing so will help you see which career choices are good for you. If your risk tolerance is low and your new job will reduce your income by 75 per cent, then you might want to re-think your decision.

4. Create a plan B. Always create backup plans when diving into new territory. You can reduce your stress about shifting careers if you flesh out more backup plans. Reflect and imagine where you want to go and consider the prospect of what might happen if your new gig does not work out. It’s helpful if you have a spouse who will provide a safety net for your family, or if you have family members who will provide financial assistance if needed.

It's okay to take a leap of faith and make the career switch. Make sure you’re well-prepared and you know how much it takes to do it.