People who change careers often forget about things they should remember. The biggest example is their financial life. If they do remember and get aware of how their financial life is going, they won’t make these financial mistakes which cost them too much later in their life.
The truth is we all need money to run our family, to pay the bills and to make things tick. Without money it’s difficult to afford a good life in the society. Thus, even if you’re going for a career change, you need to be aware that you don’t make any financial Planning mistakes along the way.
In this article, we will talk about financial mistakes that you may make that will turn out to be expensive to you. Why? Because we want you to make your career change smoother! On one hand, you would be happy making the transition that you always wanted and on the other hand you wouldn’t find peace of mind.
If you read this article, and apply whatever we’re going to offer to you, you would be able to avoid costly financial Planning mistakes during any career change.
Let’s get started with some of the Financial Mistakes you need to avoid.
Quitting your current job too soon
You may not consider as one of the biggest financial mistakes, but it actually is. Most people talk about quitting your day job and starting your own business or switching to something new. But in reality, they are not easy especially then when you have a family to feed, bills to pay and to take care of yourself and your family. Even if you have a plan of action, don’t quit the job right now. First do some due diligence in the market. Deciding to shift is great. But you need to take some time and think long term. You need to think how your decision would affect the financial destiny of your family. Ask yourself – If I don’t get to earn another year, do I have enough finance to run my life, feed my family and pay the bills? If not, don’t quit. Don’t make this new-hype-cool choice, because at last it will be counted as one of the biggest financial Planning mistakes of your career and life.
Yes, a lot of people don’t think about the uncertain future they may face in the years to come. The career you’re transitioning to may turn out to be not a good one. What would you do then? It’s a not a fearful thought. It’s pro-activity. You need to be proactive so that you don’t make most of the financial mistakes most people make. Once you decide to change your career, simply take a piece of paper and etch out a plan. How much money it would take to make a career shift? It’s usually recommended that you save at least one year of living expense before you make the shift.
One year is enough time to get yourself a new job in your new domain of work. But here’s the catch. Most people just submit their resignation letter without thinking much about their future prospects. Yes, there are few people who have succeeded doing that, but that may be a very small percentage of people. If you want to ensure that you want a good night’s sleep and a thriving career, then start saving now (if you don’t have any savings yet). Create some emergency fund. Your financial life is as good as the money you don’t need to touch. So, be wise. Don’t make these costly financial mistakes. Quitting your job without having a saving of at least a year is one of them.
Not thinking about the earning potential of the new job
There are few jobs that don’t pay well. Even if you become extra-ordinary at the skills you need in the job, you will not get paid more than a fixed amount. Why? Because all skills are not valuable in the market. Doing yoga is not a valuable skill in terms of money. If you an expert in yoga, you can teach yoga, but until you open a yoga studio or engage a bunch of people to come to your studio to practice yoga, you won’t get paid as much as you want to get paid. There’s ceiling. So, before switching your career you need to think that whether you current need will be met by the future job prospect or not. If not, think again. You may not need to jump right in to shift from your already well-paid job.
Financial mistakes are daily negligence that you make in terms of your finance. And you know not thinking about the earning potential is one of the biggest financial mistakes. Just by a spur of moment you decide to do something. But think how it would affect your financial life and as a result your extended family. Won’t you consider thinking about your family and their current lifestyle?
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Investing too much into a program for making a new career
A lot of mid-level executives do this sort of mistake. They think that if they do this course, this will earn them much, much more than they’re currently earning. But the thing is often this decision of investing too much into a program backfires. Imagine in the mid of the career you decide to do a full time MBA. Now a good MBA costs a fortune. You take loan and pay the institute and you also take care of the family. But think what if you don’t get a job of enough money after doing the MBA? What then? It’s called “contingency thinking”.
If you do this before investing too much money, it will save you from making one of the fatal financial mistakes. Think this way. There’s an opportunity cost for everything. When you decide to invest a fortune into your course, you also decide not to work during that time. As per our current example, if you do MBA, you won’t be able to work for 2 times. Now don’t only think about how much you invested into your MBA. But add also the earning lost. And then think if you get a job of a decent amount, how much time it would take to hit the break even? If you find anything beyond your reach, stop right there.
When you plan, also think about your family members who are depending on you for finance. Switching career, going for passion sound too good when you think, but in reality you also need to find the sweet spot between what works and what you’re passionate about. Otherwise making one of the worst financial mistakes during your transitioning from one to another career is a given.
Spending too much
This is one of the most critical financial mistakes you’re making if you’re trying to shift your career. Most people don’t want to reduce their expenditure because they feel stuffs make them happy. But it’s not about stuffs; it’s about how you use your money to buy stuffs that you don’t need to buy. To make things easier, here’s what you should do. First realize that you’re spending too much money. The best way to note this is to ask yourself how much percentage of money you’ve set aside either for saving or investment. If it’s anything less than 10% of your monthly income, you’re expending too much. Now, we know that the more you can save during the time of transition, better it is. But still more than 90% of spending is too much. Second, make two lists – one, the need list and two, the want list.
The need list is the list of things you absolutely need to run your life – the groceries, the things you need to buy, the bills you need to pay and so on and so forth. Now, you need to think about want list. Want list includes everything that you want to buy or you will feel nice to have, but not at all necessary for daily life. Now, you need to think what you most emphasize on every month. And that makes all the difference. If you’re more concerned about your need list, you will remain frugal; otherwise you know better. Financial Planning mistakes are not giant mistakes. They are the pile of mistakes put together day in and day out. So, save yourself from making critical financial mistakes. Save more than 10% (ideally 30% of your monthly income) for transitioning to a new career.
Not having a financial plan
This is big. We can say this is one of biggest, fatal and most critical Financial Planning mistakes you can make during the time when you’re thinking for a career change. This is the big one because once you miss out on planning you will ensure that you will fail in terms of money or else you will make some Financial Planning mistakes that you don’t want to make. If you really want to make a career changeover here what you shouldn’t do. You shouldn’t let your financial life slide by default. Rather plan out every tiny expenses, earnings, savings and investment. If you plan you have one major benefit – you would be ready if things go wrong.
Transitioning into a new career needs a lot of effort, time, research, money, investment of your skills and a lot of sacrifice. But make sure these things should not affect you financially. Here’s how you should do. First of all, don’t save and invest after spending. Do the saving and investment first. Decide how much percentage of amounts you would save and invest. Automate the system. Every month when you will receive the amount in your bank, it will automatically deposit that amount to your savings account. You don’t need to worry about anything else. Only thing is you need to run your family within the money you’re left with after savings and investment. Why we are putting more emphasis on savings and investment? The reason is while trying new things you may not always know how everything will go in advance. Thus, preparation is required if any rainy season would arrive.
Not taking care of the tax
No matter what you do, don’t ignore your taxation. You don’t need to worry about taxation by your own. Simply outsource it to someone who is expert in this field. Financial Planning mistakes are defined as mistakes that are costly in the long run. If you don’t take care of the taxes, government will not listen to your pleading. Talk to an expert in this field. Tell about your new career and the earning. And then make everything done legally. Don’t take risks with your taxation part. Otherwise you may suffer a lot later in your financial life.
Not thinking about finance for a long period of time
If you’re transitioning to a new career and you know that it would pay you well. But future is unseen. You don’t know what’s in store for you. So, think long term. What works for now may not work after 10 years. You need a solid financial base to move ahead and make something out of your career. Not thinking about finance for a long period of time is one of worst financial mistakes because people think only about short term and make a decision. It’s wrong and it can create havoc if you don’t think ahead of time.
The above are the financial mistakes you should avoid. You may think that these financial mistakes are obvious ones but they are not. This is the list of worst financial mistakes people make while shifting from one domain of work to another. And if you pay heed you would see that the most obvious things are always ignored. Money is important. And if you don’t take care of money who else will?
Financial Planning mistakes are such that once you make them for years, it’s difficult to come back and repair your mistakes. Thus be aware of them from the beginning. Have a plan handy to avoid these financial mistakes. If your finance is in proper order, making a transition from one career to another would become much easier.