What to do before you change careers

5 Smart Money Moves for Career Changers

by Maryalene LaPonsie

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As a seafood production manager and exporter, Kevin Worthley felt uninspired by his career. With fish populations on the decline and government regulations on the incline, Worthley was looking for something that held more potential and interest for him. So in 2000, he changed careers to become a financial planner, just in time for the dot com bubble to burst and the stock market to take a nose dive.

Fortunately, Worthley had his financial ducks in a row and was able to live off savings while he searched for the right position in his new career. "It took me three to four years before I knew for sure I would be ok," he said.

Today, Worthley is a financial planner and portfolio manager for The Retirement Planning Company in Warwick, R.I. Despite the long journey to financial stability, he says he has never regretted his decision to change careers.

As a certified financial planner, Worthley advises his clients to get their financial house in order before heading back to school or hunting for a new career. It is a sentiment echoed by other financial planners and personal finance experts.

"More than likely, a career change is going to involve, at the very least, a short-term reduction in pay," said Andrew Schrage, editor for personal finance site MoneyCrashers.com.

To weather the money crunch that often accompanies career changes, workers should be sure their finances are in excellent shape before embarking on a new employment adventure. Here are five smart money moves worth considering.

1. Make a budget

You certainly don't expect to potentially upturn your family's finances without making a budget, do you? Although not glamorous, a working budget is the backbone of good personal finance and is especially important for those planning to change careers. Plan for the worst case scenario and don't forget to factor in any school tuition or job-hunting expenses, such as clothes and gas. The goal is to have a strategy in place to get you through any lean months during the transition period.

2. Shore up your emergency fund

Conventional wisdom has traditionally held that three to six months' worth of expenses are needed for a fully funded emergency fund.

"Now, we often tell people to have six to twelve months of spending cash readily available," said Douglas Goldstein, CFP, financial advisor and author of Building Wealth: Investing in Stocks.

Worthley agrees having a sizable emergency cushion is essential, particularly for those planning to start a small business or go into a field such as sales. In these situations, creating a stable cash flow or steady portfolio of clients can take additional time.

3. Have your employer pay for your degree

If you are planning to go back to school, some financial experts say workers should not be afraid to ask their boss to pick up the tab. Mitchell Weiss, a financial consultant and adjunct faculty member at the Barney School of Business at the University of Hartford, says it is best if this discussion starts during the hiring cycle. However, existing employees can broach the subject during performance reviews.

"It's perfectly appropriate to ask about tuition reimbursement plans whenever these conversations end up taking place," said Weiss, "before you take the job and even while you're in the middle of it."

While some career changes necessitate changing employers, don't assume you can't stay in the same organization in your new occupation. Large companies in particular offer an array of career options and tuition reimbursement programs can be a win-win option.

4. Calculate the return on investment

"One of the biggest mistakes people make is failing to look at the return on investment," said Goldstein.

The financial planner advises anyone considering a new career to take a step back and reevaluate his/her situation. In some cases, individuals may simply need a new employer rather than a new career. In other situations, a vacation may be all it takes to revitalize a burned out employee. Goldstein says it is vital to calculate the cost of a new education and career and balance that against potential future earnings.

"Lot of people go into huge debt to switch careers," he said, "and they may never make that back."

5. Clean up your credit score

Finally, career changers would be smart to request a copy of their credit report and clean up any mistakes. If you plan to go back to school, your credit score could influence student loan interest rates. In addition, it may surprise you to know that many employers now check credit scores as part of their job screening process.

"The main reason people decide to switch careers is a lack of satisfaction with their current job," said Schrage. "If you make a jump only to find yourself in more debt than before, any newfound happiness will be negated by the increased stress of monthly finances."

As Worthley can attest, a career change can be positive experience. However, you need some smart money moves and honest self-evaluation to avoid being tripped up by debt and disappointment.

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