Considering a career change?

How changing careers can impact your finances

27 July 2021

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What we’ll cover

The importance of your emergency fund
Revisiting your budget
Adjusting your savings goals
What can happen to your pension?

Thinking about changing careers?

The concept of having one job for your whole life is changing over time. Nowadays, people in the UK are likely to have several different jobs during their working years.

There could be several reasons for switching careers: wanting higher salaries, a better work-life balance, or seeking greater job satisfaction. Yet one of the most significant barriers to making a change is the financial security a stable job provides.

But if you’re ready to take the plunge, changing careers can be an exciting time.

Before you get carried away dreaming about what the future could hold, you may want to consider the impact it may have on your finances, especially if you’re looking at taking a pay cut or relocating. That’s why we’re going to walk you through a few things you might like to think about in terms of your budget.

Can you afford to change careers?

We’re not looking to rain on anyone’s parade, but it’s essential to make sure you can afford to make the change.

It’s important to prepare yourself financially for your new career. Will your new job mean you’ll be starting at an entry level position? If so, is the starting salary lower? That might mean rethinking your budget, so what can you do to prepare?

1. Streamline your spending

Before taking the plunge, why not consider streamlining your spending?

If your new salary will be lower, now might be the time to start changing your spending habits. This could mean cancelling the gym membership you never use or reducing the number of coffees you buy in a day.

2. How does your emergency fund look?

Your emergency fund is there to help you when you get into a financial jam. In other words, when something unexpected happens. Although technically, a career change may not be unexpected, it is something out of the ordinary that could impact your finances.

Having three to six months of money saved could help you get through the initial phase of your career change. If you’re going to be self-employed, it may make sense to have more of a cushion, since your income may be less predictable.

3. Revisit your budget

It’s probably time to sit down and revisit your budget just to be sure you know where you stand. What impact will your new commute to work have, if you have one? Will your travel costs increase?

Consider creating an exploratory monthly budget using your new salary as your income. This can help identify where any shortfalls may occur, and give you an idea of how you can adjust your spending habits accordingly.

Don’t forget about your savings

So far, we’ve concentrated on what might happen if the salary from your new career is lower. It may be higher – happy days.

Whether you have an easy access savings account, an ISA, or some other type of investment product, now might be the time to revisit how much you’re setting aside. The type of savings account you choose (or indeed accounts) comes down to what you want from it – instant access, tax efficiency etc.

The most important thing to remember is that saving regularly gives you:

Peace of mind.
More options for decisions that can affect your quality of life.
The chance to help you enjoy the retirement you want.

What will happen to your pension?

If you change jobs, your workplace pension still belongs to you. Even if you do not continue contributing into the scheme, the money will remain invested and you’ll get a pension when you reach the scheme’s pension age.

You may also join another workplace pension scheme at your new employer.

There’s also a possibility that you may be able to combine the old and new pension schemes.

If you’re unsure of your options, you might want to speak to a pensions advisor who can point you in the right direction.

The bottom line

Changing careers is an exciting time. You’re going to meet new people, have new experiences, and learn new skills. But before you get carried away, it might also be time to think about your finances.

Before you take the plunge, there’s a lot to think about:

If you’re taking a drop in salary, how will it impact you and your family’s life?
If your salary is increasing, how will the other benefits (e.g., pension, health insurance etc.) affect your take-home pay?
If you’ve had to relocate, what does your new budget look like? Will your travel costs be increasing?
What happens to your old pension?

If you’re feeling overwhelmed, don’t forget you don’t have to go it alone. A financial advisor can help by answering your questions.

The content in this article is for information only and is not advice. All content in this article was accurate on the date of publication shown above.