THE CAREER CHANGE FINANCIAL PLANNER

Following up on my two most recent posts, here’s one more take on how to get back on your feet financially once employed again after a time out of work.  Written by Brett Arends of the Wall Street Journal, the article A Financial Plan for the Newly Rehired includes fresh ideas, new perspectives, and often-overlooked points.

My absolute favorite point and, IMHO, the key to getting back on track: “Your newly frugal—or at least simplified—lifestyle is the most valuable asset you accumulated during those long months out of work. And you earned it the hard way, too. Don’t throw it away lightly.” Check out the rest of the article!

Tags: Involuntary career change, Job loss, Newly Rehired, Pink Slip Lemonade // Add Comment »

Looking for more ideas on this blog’s last topic??  For another take on getting back on track post-unemployment, check out this article by my fellow Garrett Planning Network member Jean Keener.  She points out that if you maintain your lower level of spending once the paychecks start rolling in, you could very well be in a better place than you were before the lay-off in fairly short order.  The article features her prioritized list for getting there in 6 steps.  Enjoy!

Tags: Involuntary career change, Job loss, Newly Rehired, Pink Slip Lemonade // Add Comment »

Congratulations! If you’re one of the many rejoining the workforce after a period of unemployment, definitely take a moment to celebrate and appreciate what not so long ago we used to take for granted: a full-time job. 

OK, but no rest for the weary…  Now it’s time to get serious and take advantage of your newfound security to be better prepared in case it happens again.  And with what appears to be a permanent shift away from the unspoken employer/employee contract of old, your safest bet is to assume that it — a period of un- or underemployment — can happen again at any time, and plan accordingly.  Here’s what I’d recommend:

1. Reevaluate cash flow and income taxes, i.e. understand what your true new take-home is, so that you can make good choices about spending levels and how to allocate the new income. (The newly reemployed may feel like recent college grads or ex-cons, just freed up from a long period of austerity measures and eager for a little retail therapy, and wishful-think themselves into overspending. Certainly, a little splurge is probably in order, but be careful not to further derail things.)

2. Now that you’re employed and probably eligible again, look at refinancing your mortgage (rates are still low) – maybe consolidating some other debt — & at least secure a Home Equity Line of Credit (again, to open up your options should unemployment happen again.)

3. Check your credit report. If it’s not where it should be so that you qualify for the best rates on loans, begin taking steps to fix that.  (Liz Pulliam Weston is the expert on how to do that.)

4. Be sure to evaluate employee benefits at the new job: 401k match? Health insurance better than spouse’s? Cafeteria plan? Employer Stock Purchase Plan? Life insurance benefit worth taking advantage of? Any other “free money”??

5. Even if you are earning so much that you’re sure to be ineligible for college financial aid for any kids going to school, fill out the college financial aid form (FAFSA). Otherwise, you’re out of luck for a financial aid reevaluation if your situation changes for the worse.

6. Once you have a grasp of cash flow, you’ll be in a position to decide how much to devote to a) paying down debt,  b) rebuilding emergency reserves,  c) restarting saving toward goals such as retirement. In general, don’t max out your 401k if either a) or b) is a trouble area. But do at least get any 401k match. Don’t prepay a mortgage with a lower interest rate if you’ve got credit card debt at 27% or an inadequate emergency fund (< 6 months living expenses).

7. Once you understand your income tax situation, you can decide how to set your withholding to avoid ending up with a big bill (& maybe penalties) or refund next April. If your new cash flow permits, you may want to play some catch-up for retirement by making a 2009 IRA (Roth or traditional) contribution before April, or having a self-employed spouse direct more to his/her SEP or Solo 401k. BUT not until you have a foundation (emergency fund, “bad” debt paid off, cash flow under control) firmly in place!

Tags: Involuntary career change, Job loss, Newly Rehired, Pink Slip Lemonade // Add Comment »

I had to chuckle at the line “In this recovery, flat is the new up” in the Newsweek article Joblessness is Here to Stay by Rana Foroohar. Unfortunately, the rest of the article doesn’t provide a lot of reasons to laugh, but many reasons to manage your money as if an unplanned career change might be just around the corner. While I am certainly grateful for any recovery after what we saw last year, caution remains the watchword, as the article effectively argues.

Tags: Involuntary career change // Add Comment »

Here to share her career change story is guest blogger Stephanie Chandler. Stephanie’s latest book, LEAP! 101 Ways to Grow Your Business, is a must-read for those planning to start a business and anyone who wants to take their company to the next level.  Also be sure to check out her website www.BusinessInfoGuide.com, a directory of resources for entrepreneurs.

In 2003, I left my Silicon Valley career behind to open a bookstore in Sacramento.  My goal was to create a passive income business so that I could become a novelist!  

Before I quit my job, I spent a year building my business plan. At the same time, I was tucking away as much money as I could and cutting my expenses. I knew that I wouldn’t earn a Silicon Valley income right away, so it was important to have a year’s worth of living expenses in the bank.

Right around that time, my husband was offered a job transfer up to Sacramento, about 100 miles from where I lived in the Bay Area. I saw that as an opportunity to cut our expenses dramatically since the home prices and cost of living in Sacramento were at least 2/3 less than what we were spending in the bay area. So I sold my house and moved up north—and I’d do it all over again as it was a smart way to prepare for the big transition.

I also opened up a line of credit. I didn’t need it, but wanted to have access to it just in case. One thing the books don’t tell you is that when you quit your job and start a business, you have to reestablish credit. Without verifiable income from a paycheck, it can be much harder to get access to money. I highly recommend getting it before you need it!

So I had my financial and business plan firmly in place.  But the Universe had a different plan for me. Here’s a quick run-down on what’s happened since:

1. Opening a retail store in a lousy location (no street visibility) provided an excellent training ground for small business marketing.

2. I quickly discovered that I am a lousy novelist–not nearly enough imagination.

3. Thanks to internet marketing strategies, I got the bookstore website to the top of Google almost instantaneously. I went on to launch BusinessInfoGuide.com, which has since benefited from SEO practices and a slow and steady evolution.

4. It didn’t take long to realize that I hated just about everything involved in owning a retail store–except the marketing (and the endless supply of books!)

5. I caught the nonfiction bug and decided to write books that I wanted to read. My first title was released in 2005, followed by books in 2006, 2008 and 2009. (I missed one year when I had a baby!)

6. Selling the bookstore was one of the best decisions I ever made. My only regret was not doing it sooner–I was ready to let it go.

7. Launching Authority Publishing was the logical culmination of everything I’ve done so far. It’s created an opportunity for me to leverage my publishing experience (bookstore owner, self-published first book, three traditional book contracts, countless information products…) and blend it with my internet marketing experience. It has also forced me to build a team and treat my business as an asset (so I can take a vacation once in a while!) The results have been spectacular and I know that I am exactly where I am supposed to be.

The other thing I know for sure about my journey over the last six years is that I wouldn’t be doing what I am now if I weren’t willing to take some risks. Taking risks involves letting some things go–which is not always easy.

In this economy, I see a lot of people struggling with this concept, essentially beating a dead horse. But it’s important no matter where the economy is headed. If what you’re doing isn’t working or if it’s bringing you down in any way, perhaps it’s time to consider other options–regardless of how much time or money or emotion you have invested in your dead horse.  Often when you’re willing to let go, all kinds of magical things can happen.

Tags: Career change stories, Self-employment, Start a business // 3 Comments »

In my last post, I mentioned that I took several important points away from my session with Manchester, NH-based Dynamic Networking Group.  Lesson #2 in this series is a short and sweet one: If the life insurance provided by your employer is crucial to your family’s financial well-being, check now — before your job is at risk — to make sure you can take it with you in the event of a layoff.  If it isn’t, you’ll want to look into obtaining a private policy that will cover you no matter your employment status.  (Ditto if your employer policy is portable, but too costly vs. other comparable alternatives.)

In the not-too-distant past, this was hardly even an issue because 1) employer-sponsored life insurance could usually be converted to a policy you could take with you, and 2) employment gaps were typically few, far between, and relatively short.  Unless you’ve been living under a rock, you know that the latter is no longer true.  

But for the first time, at the Dynamic Networking Group meeting, I heard from a group member about an employer-sponsored policy that was not portable.   Theoretically, this was always possible, that such policies were out there;  I’d just never run across one.  Now I don’t mean to attach too much significance to one instance of this, or suggest that it’s a trend.  However, in thinking about the damage that could be done to a family’s security by overlooking this, I’m adding it to my checklist of items permanent employees will want to start paying more attention to in our new, pink slip-happy world, and I recommend you do the same.

Tags: Career Change To Do List, Insurance, Involuntary career change, Job loss, Life Insurance, Pink Slip Lemonade, Pre-transition To Do List // Add Comment »

Many thanks to Leslie Barrett (seated, left) and Manchester, NH-based Dynamic Networking Group for inviting me to present “Making the Most of Your Money: Post-Pink Slip and Beyond” at their monthly meeting yesterday!   

I think this quote sums up the experience perfectly.

Who dares to teach must never cease to learn. — John Cotton Dana

Despite the bad weather, turkey hangover, and Pats/Saints game (so much for that!), group members showed up energized and full of great ideas to share, resulting in a lively, informative discussion for everyone attending.   I enjoyed seeing familiar faces and meeting new, but I also picked up several valuable pieces of information likely to be of interest to readers of the blog.

First up… an issue on everyone’s minds these days: health insurance or, more specifically for this crowd, the COBRA subsidy enacted as part of this year’s stimulus package. One attendee in particular has been following this subject very closely (via useful Web sites nelp.org and unemployedworkers.org), and he graciously shared with us what he’s learned about the details of the program.

• There is an expiration date on the program, and it is rapidly approaching: December 31, 2009. However, it’s NOT that benefits to anyone who has been receiving them stop on that date; once benefits have begun, they can last up to 9 months. Rather, the deadline has to do with establishing initial eligibility for the program, i.e. no one terminated from employment after December 31 is eligible to participate in the program (details)… as it now stands.
• Having said that, there is talk in Congress of extending this program, but nothing’s definite yet.  (*** 1/2/10 Update — Good news!  The COBRA Subside has been extended.  Learn about what that means for you here.  ***)

In addition to health insurance, I also came away from the talk with some fresh points on life insurance, pension plans, and unemployment benefits for the self-employed.  Look for those to show up on the blog over the next few posts.

p.s. A big shout-out also goes to Todd Fothergill, Managing Director of Strategies for College, Inc. college planning services, for loaning us a projector!

Tags: Health Insurance, Involuntary career change, Job loss, Pink Slip Lemonade // Add Comment »

Don’t miss this recent Boston Globe Money Makeover by my friend and NAPFA colleague Dana Levit!

This is exactly the kind of financial planning I recommend prospective career changers do before making a transition. Doing an analysis like this is even more important if your transition is likely to result in a lower annual income for life, as for the woman profiled in the article and the client I discussed in this recent post (4th bullet).

That’s because:

1. it can determine the viability of the proposed change with much less risk than a “jump and grow wings on the way down” strategy;
2. it can pinpoint any gaps (e.g. here, the need to earn $12,000 a year and increase portfolio diversification) and opportunities (here, a Roth IRA conversion) ahead of time.

Having this information and acting on it — making the most of her money through this time of change — could well mean the difference between a career change that sticks and an unwelcome return to the salt mines.

Tags: Career change math, Career change stories, Cash Flow, Involuntary career change, Job loss, Pink Slip Lemonade // Add Comment »

Next Monday, November 30, at 6 PM Eastern, I’ll be doing an encore presentation of “Making the Most of Your Money: Post-Pink Slip and Beyond”, this time for the Dynamic Networking Group, a Manchester, NH-based group of business professionals dedicated to helping members navigate career transitions.

As most of you have probably heard a thousand times lately, job growth typically lags in any economic recovery. Unfortunately, this time is no exception, and recent job stats suggest that, despite some optimistic signs of recovery, this topic remains relevant. So if you’ve recently lost your job or are worried you could be next, and you’re within striking distance of Manchester, NH, please join us! Click here to learn more.

Tags: Involuntary career change, Job loss, Pink Slip Lemonade // 1 Comment »

Photo by David St. Germain

Ch-ch-ch-ch-changes… Every year, trees do it beautifully. For them, change comes at little or no cost. The same is true for some lucky career changers, who happen to want a change that doesn’t require a major investment in additional education or business start-up costs, a big pay cut, a period of under- or unemployment, or an expensive relocation.

But for others, the numbers can really add up. This isn’t necessarily a dealbreaker since, for most, it’s not all about the money. But as discussed in the previous post, you’re better off doing the math before your leap than finding out later — after you’re broke — that you fall into the latter category. Here are a few examples:

• Total ~$0 – After 20 years in the military, a mid-level manager wants to try his hand in the private sector. His modest living expenses are less than he’ll receive in military pension income if he retires today, and health insurance is covered. Even if it takes him a while to find his dream role, he won’t have to lay out any cash in order to make this change.
• Total ~$20,000 - A tech writer at a large firm wants to become a contractor instead of a full-time employee to gain flexibility in the hours she works. She gets health insurance through her spouse’s employer and, although self-employment taxes will hurt cash flow, she sees a lot of opportunities for ramping down living expenses. Still, she estimates it may take a year or so for her income to reach target levels, so the family expects to see a shortfall in combined household income vs. expenses.
• Total ~$120,000 over 5 years for a software marketing manager who wants to start her own financial planning practice - This includes the cost of the CFP® education, participation in related professional organizations, business start-up costs, plus enough to cover the gap in skinnied down living expenses for the 3 - 5 years it usually takes a business to get up and running.
• ~$70,000 each year post-change - An executive at a high-tech firm — the family’s sole breadwinner — wants to leave corporate and become a public school teacher, a job at which his income is expected to be dramatically lower. He thinks it might take up to 6 months to find a job, so his costs to transition include living expenses plus private health insurance for the family for that period, about $70,000. Currently, the family spends about $70,000 more a year than the anticipated future income from the teaching job, so in order to pull this change off without going broke, they will need a portfolio that can support annual withdrawals of that size — or a plan to reduce expenses. (Hint: This is an especially good candidate for a detailed career change financial plan.)

That range of examples should give you some idea as to how to calculate what you’ll need for your Escape Fund — my term for the cash stash required to get you safely to the other side of your transition. (NOTE: This is not the same as an Emergency Fund, the cash reserve fund recommended for everyone regardless of career plans.)

The astute observer may also be wondering about the less obvious costs — opportunity costs and/or longer term impacts — that a career changer may incur. These costs, as well as the benefits, absolutely should also factor into your career change financial plan, so be sure to watch this space for discussion on those topics in future posts.

Tags: Cash Flow, Escape Fund, Expenses, Involuntary career change, Job loss, Pink Slip Lemonade // 1 Comment »