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Is Your Budget Ready for Your Job Change?

Feb 12, 2019 | 3 Min Read | Ben Gran

Key Takeaways

  • As soon as possible, make a financial plan and set a budget.
  • Prepare for the possibility of reduced income.
  • Use this time to assess whether your overall spending aligns with your life goals.

 

Perhaps you're hearing rumors of possible layoffs or contemplating a new career or retirement; maybe you want to try your hand at freelancing, go back to school full-time, or take a break from employment so you can care for a new child or an aging loved one.

No matter the reason, before you go through a job change, you should consider your overall budget and financial circumstances. Assess your required expenses and prepare for any short-term disruption to your income. This kind of transition can also provide an opportunity to reset and redesign your life, to make sure that no matter how much money you make, your life is rich with meaning.

There are several financial factors that people should keep in mind during a job change.

 

Fill the gap

One of the first factors to consider is whether you will forgo pay for a while. It's best to plan for a temporary lapse in income and maximize other income opportunities. Make a list of all the possible sources of income and liquid assets available to you. For example:

  • If you are expecting to be laid off as part of a larger restructuring at your company, research whether you are eligible for severance pay.

  • If you've been fired or laid off, determine how much you could receive from filing a claim for unemployment. Go to your state's Department of Labor or Workforce Development agency website to learn how much you could expect to receive in unemployment benefits.

  • Determine whether you have any accrued vacation time or sick leave that can be converted to cash compensation when you leave your job.

  • Evaluate your overall financial holdings and create a worst-case scenario plan. Review your emergency savings and investments to see what you'll have access to between jobs. Would it cover your worst-case scenario? If not, what would be the pros/cons of selling stock, a vehicle, or even your house, in order to stay afloat?

  • Make a list of companies you make regular payments to, such as utilities, credit card providers, and mortgage lenders. Contact those creditors to see if they offer a hardship program that lets you defer payments until you are on stronger financial ground.

 

 

Know the tax implications

Changing jobs often comes with unexpected costs, and taxes can be part of that Opens in a new window. For example, if you are fired or laid off and receive unemployment benefits, that money is generally considered to be taxable income; try to set some money aside to cover your tax bill next year. There can also be an upside, tax-wise: If you sell your home in the process of changing jobs, as noted in the IRS article above, you can generally keep any profits from this sale without owing federal taxes on that amount. And don't bother saving your receipts for the costs of your next job search – under the tax law that took effect on Jan. 1, 2018, job search expenses are no longer tax-deductible. Opens in a new window

 

Adjust your lifestyle to save money

Changing jobs is a great opportunity to re-evaluate your priorities. People often find that when they have more free time and flexibility outside of traditional employment, they save money in some unexpected ways – such as by not having the costs of a commute, dry cleaning, or restaurant meals.

A few lifestyle questions to consider when changing jobs:

  • Would you like to move to a new residence, downsize to a smaller home, or move to a lower-cost city (or even another country)?

  • Could you live without two cars or trade in your expensive car for a lower-cost model?

  • How do you want to spend your leisure time? Can you save money by having friends over for dinner instead of going out to restaurants, canceling your gym membership and walking in the park, or checking out books and movies from the library?

  • What do you really want to do with your life? How can you design a life that is more focused on what is truly meaningful to you, beyond just paying the bills?

 

What you can do next

Make a list of your possible income sources to bridge any financial gaps, and set a budget to adapt to your circumstances. Be conservative in your estimates in case your job search goes longer than expected.

 

Ben Gran is a freelance writer based in Des Moines, Iowa. He writes about personal finance, public policy, financial services, technology, and business.

 

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