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Actions How to Bankroll a Job Change
Key Takeaways
- Increase your emergency fund to six to 12 months' worth of expenses.
- Account for education, training, and investment expenses.
- Remember that inflation and other hidden costs may impact your plan.
John Brown, a fictional job hunter, just turned 45. A successful corporate marketer for over 20 years, he's on the hunt for work because his company just downsized. There is good news for John: The job market is booming Opens in new window. The bad news is, more firms are moving to online analytics tools and looking to hire newly-minted graduates with degrees in data science and other fields that John lacks experience in. John knows that it's not too late for a shift in position, industry, or even career. There's just one problem: How much does he need in the bank to fund this life transition?
Like most of life's financial questions, there is no simple answer; much depends on your age, marital status, lifestyle, and circumstances. Luckily, deciding how much to sock away doesn't have to be difficult when you do a little up-front planning.
Begin with emergency savings
According to the Economic Well-Being of U.S. Households PDF Opens in new window report, most American households' financial situation has improved significantly in recent years. But six in 10 people still can't handle a $500 emergency, according to a recent survey by Prudential PDF Opens in new window. To guard against unforeseen events during the transition, put away at least six months of savings (i.e., take-home pay). This cushion can help you guard against medical concerns, car crashes, unexpected bills, and more. Side note: If you've already racked up some expenses, you still want to put away at least one to two months' worth of savings in the bank before paying down high-interest debt. You can make a dent in the debt payoff once you've got your basic emergency needs covered.
Plan for downswings
Statistics show that the average time you'll be unemployed Opens in new window is around 24 weeks. But how long you'll spend between positions can vary wildly by industry, seasonality, locale, and market. Noting this, it's best to augment savings by adding another three months' worth of financial padding in case you find yourself in a holding pattern for longer than anticipated. Staying liquid (having ready access to cash) during times of financial turbulence is important as well. High-yield savings and money market accounts with high interest rates can help you earn more on every dollar.
Consider your circumstances
Ask yourself some important questions: Are you single or married? Part of a single- or dual-income home? Do you have kids? Friends or loved ones who can help you out if the going gets rough? Are you taking care of aging parents? Dealing with medical conditions? Naturally, if you're the head of a single-income family with multiple children or have a number of concerns you're fielding given your life stage or situation, you're going to need to sock away more savings than a healthy young buck who's riding solo. A good rule of thumb: If you've got dependents or a spouse who count on you, plan to put away another three months' worth of savings – you'll be glad you did.
Decide if school is right for you
Are you planning to go to school to acquire new skills? The College Board says the average cost Opens in new window of yearly tuition ranges from $3,440 (public two-year college, in-district students) to an astounding $32,410 (private four-year college). Even community colleges will require a good chunk of change Opens in new window that you'll have to account for. Be sure to save for all education costs – including associated expenses such as books, supplies, computers, etc. – if your career change requires more education.
Account for inflation
Historically, inflation rates hover between 2% to 3% in the U.S. Opens in new window, Naturally, bankrolling a job or career change – especially a sudden or unplanned one – is a costly endeavor. But with a little research and planning, you can easily navigate your way through such transitions.
What you can do next
Make a list of your expenses (current and anticipated), and how long you may go between paying jobs. Then, create a budget and savings plan, taking into account hidden expenses and inflation, for building a healthy emergency fund.
Scott Steinberg is a professional speaker and the author of 14 bestselling books on personal finance, leadership, and innovation.
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