Photo by Sharon Harvell

Could it be that the long-awaited bluer skies are finally returning?  The stock market, holiday spending, and other economic indicators are up. Most welcome of all perhaps, according to the latest report, unemployment is down. 

If you are one of the lucky beneficiaries of this nascent uptick in hiring, congratulations!  Before you get too caught up in the day-to-day demands of full-time employment, check out my thoughts and others’ on how to make the most of your new job – financially speaking — in this article Newly Re-Employed Need To Revisit Financial Goals by CNBC’s Shelly Schwartz. 

Founder of Aspire!, Randi Bussin

Randi has changed careers twice, working in high tech, higher education, and is a serial entrepreneur.  She has an MBA from INSEAD and an MA from Tufts University.

She was recently voted one of 100 Personal Branding Experts to Follow on Twitter in 2010.

Those from the world of software development know that Beta test is the last phase before a product is officially released, and its purpose is to test drive the product under conditions that mimic as much as possible the way it will be used in real life by real customers.  The kinds of testing that come prior to Beta — unit test, Alpha test, etc. — are typically done internally by the company, and they are critical to getting the software to the point where it is even usable by real customers.

BUT it turns out that, no matter how bulletproof the software development team thinks they’ve made the product, there are always important issues uncovered once a Beta version of it gets into customer hands.  When these problems are found in Beta testing, they can be fixed BEFORE the official release when expectations and stakes are not as high as they would be in production use.  Yes, as all software users know, pretty much every piece of software gets out the door with at least some minor bugs remaining, but those that are thoroughly Beta tested are less likely to result in wildly customer-unfriendly behavior such as data loss, repeated crashing, and blue screens of death.

And this is an important lesson for career changers, retirees, and others whose plans include a change in employment compensation: try before you buy.  Or to put it another way, Beta test your post-transition financial plan as much as possible BEFORE you say goodbye to your regular paycheck.  For career changers and software development teams alike, it is easy to get caught up in the excitement of the new, the feeling of having already done so much and come so far, and the desire to just “get’er done”.

When it comes to career change, including retirement, this often shows up as an overly optimistic view of how much it is possible to reduce living expenses, in order to pull off the desired change.   I read a study a while back that suggested most of us can reduce expenses by 10% without a significant hit to lifestyle, but it’s a really good idea to verify that’s true, not to mention sufficient, for you while you still have all your options open.  Here’s how:

1. Download my free Cash Flow Worksheet with before, during, and after columns, as well as hints on categories where career changers are likely to see fluctuations.  First, determine your current income and expenses, which will help you with the next step: making estimates for the “during” and “after” columns.
2. If your post-transition budget doesn’t balance (i.e. more cash flows out than in, and the assets intended to fund this change can’t make up the difference), dig into more detail and identify additional areas where you think you can reduce spending, being as realistic as possible.
3. Now Beta test your plan.  In other words, try now, while you’re still gainfully employed, to spend at the post-transition level to see what “bugs” might be lurking.   While you won’t be able to test every change, e.g. lower commuting costs, you should be able to learn a lot just tracking the categories you can simulate, e.g. spend less eating out.
4. Fix bugs, and retest until the plan is ready for “production use”.

Even if the 1.0 version of your spending plan is perfectly achievable, it sometimes takes a while to make a downward shift in spending.  This Beta test strategy not only gives you that time, it has the added bonus of further padding your nest egg, er, goat pen, should a little extra cash come in handy.  And doesn’t it always??

Randi has changed careers twice, working in high tech, higher education, and is a serial entrepreneur.  She has an MBA from INSEAD and an MA from Tufts University.

She was recently voted one of 100 Personal Branding Experts to Follow on Twitter in 2010.

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.

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.

It’s no secret to the many who lost their jobs in this recession: getting laid off can wreak serious havoc on your personal finances.  So what can you do to minimize the impact?  Then, once you’re back to work, what might you do to be better prepared in case it happens again? 

This is one of the many topics the impressive new networking group Network for Work (TM) addresses in order to help members emerge successfully from a job loss.   So I was pleased to share my thoughts with group founders and hosts Tammy Hildreth, Jim Starrett, and Paul Philbrick on today’s Network for Work (TM) Radio show.   Click here to listen (in MP3 format) to the segment, and join me for next week’s Webinar (+ bonus 1-on-1 networking session) to learn more financial planning strategies for a pink-slip-crazy world.

Photo by Ryan Finnie

In case you missed my recent ten timely tips newsletter… a special follow-up to career changers using 529 savings to cover back-to-school expenses: computer technology, related equipment and/or related services such as Internet access now count as qualified expenses. i.e. You can use tax-free dollars distributed from 529 plans to pay for these items.  The catch: This feature expires at the end of 2010.  Be sure to review the details and plan your spending accordingly.

Prior to making my shift, I had anticipated I’d have to take a pay cut to make such a dramatic jump.  Much to my amazement, I ended up getting offered more post-transition, for a job for which I didn’t have a ton of direct experience.   OK, the MBA probably didn’t hurt, but I also believe the internship played a part in helping my prospective employer see me as a card-carrying member of my target profession. 

The lesson: Don’t overlook, downplay, or genericize volunteer work you may have done.  If you gained valuable experience that contributes to your readiness for your new career, make it easier for employers to figure that out, and compensate you accordingly.  Check out this article from fellow Clark alum and career marketing architect Abby Locke for tips on how to do just that.