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Affording Career Change: Debt, Benefits, & Taxes

By Randi Bussin

This is part 2 of the 2-part series, Affording Career Change, offers 7 tips for managing debt, benefits, and taxes during your career change. Part 1 covers the other critical issue of managing your cash flow during your career change.

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Debt Reduction and Cash Flow

1. Start tracking your expenses:

Create a budget for your expenses and start tracking where you are spending your money. Are there places where you could tighten your belt?

Start practicing living within your target spending level before you absolutely must, to

A. Ensure you've developed a plan that's feasible, and

B.  Adjust to the changes ahead because, if the shift in expenses is large, it can take some adjustment time.

Also, consider that if you are working in a job you are passionate about, you are likely to feel happier and less stressed, which could result in spending less money on things to help you manage your stress (doctor's visits, massage, facials, prepared meals, "retail therapy," etc.).

For inspiration and perspective, as well as practical tips on saving money and spending consciously, pick up the book "Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence."

Also, visit this About.com page for a several free cash flow worksheet templates to help you itemize expenses before, during, and after your transition. The worksheet includes hints on the expenses most likely to shift as you go through your career change.

2. Build a cash cushion:

Even if you reduce your expenses, it is probably best to have more than the normally recommended "emergency fund" (3–6 months of living expenses) as a cash cushion, especially if you expect to be earning less. If you think the reinvention may take longer, and oftentimes they do, consider putting aside additional funds to ease your stress levels and ensure your transition efforts do not get derailed.

3. Take on extra work to finance the career change:

Is there an opportunity for you now to grab some overtime hours or extra work? You can use this extra cash as your career reinvention nest egg. You also could consider taking on a Saturday job or a one-day-a-week evening gig to bring in some extra cash.

4. Give yourself some credit:

A great way to "give yourself some credit" going into your career transition is by paying down (or, better yet, paying off) some existing debt.

Just think how much peace of mind you can create for yourself if

A. Your monthly expenses are that much lower and

B. Your available credit is that much higher.

For the same reasons, it is probably best not to make any significant purchases, e.g. a new car, prior to your transition. But, if you have to, consider buying a lower-end or used product, or see if you can make payments as opposed to paying in one lump sum.

Also aim to secure a line of credit while you are employed and have steady income. This will help you feel comfortable about having additional emergency funds available.

Employee Benefits

5. Get a handle on your health insurance costs:

If your current employer provides medical insurance, calculate the costs of continuing that coverage with COBRA until you have landed a new role with benefits. Also, check with private insurers as sometimes they are less expensive than COBRA.

Also, if you think your coverage might be less in the new field, consider moving up some of your elective visits and procedures while you are still employed.

6. Research other employee benefits:

When planning your post-transition personal finances, don't forget to investigate other employee benefits that can affect your total compensation and overall financial picture going forward. In particular, whether benefits such as employer-paid life and disability insurance, flexible spending accounts (which allow you to pay for medical and dependent care expenses with pre-tax dollars), and employee stock purchase plans are offered can make a big difference in your total compensation.

Income Taxes

7. Income Taxes:

Speaking of income taxes, be sure to factor your new income level into your cash flow planning.

If you experience a temporary reduction or gap in income, you could find yourself in a lower tax bracket and/or eligible for tax breaks previously not available to you (e.g. Roth IRA eligibility or deduction on tuition paid).

If you're married when your income goes down, it might make sense for your spouse, if employed, to reduce income tax withholding. This way, you can have the use of those funds throughout the year, instead of waiting for Uncle Sam to refund them in April.

The IRS website has a Withholding Calculator you can use to determine withholding levels, but taxes can be a little tricky. If you're unsure at all, see a financial planner or CPA.

Bottom Line

Part 1 covers the other critical issue of managing your cash flow during your career change so that you can survive the financial transition to thrive in your new career. This all might seem like a lot to think about, but consider how happy and excited you'll be doing work that fulfills your passion.


About the author...

Job-Hunt's Career Change Expert, Randi Bussin, founder and president of Aspire!, is a career coach and counselor with more than 25 years of business, entrepreneurial, and career counseling experience, including DISC assessments. Randi has experienced several major career transitions (from corporate to small business owner to career counselor to coach) and personally understands the effort and commitment involved. She has appeared on public television's "Job Doctor," and is a frequent contributor to Bridgestar's Leadership Matters newsletter, The Ladders job-search Web site (www.theladders.com) and her own blog, which offers advice on career transition, job search, and labor market trends. Follow Randi on Twitter @Aspire4Success.


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