But even if you are 100% sure you have a “can’t fail” idea for a business, actually carrying the whole thing out is scary.  As any retiree will tell you, saying goodbye to the vaunted “steady paycheck” is a big step, and probably especially so in this still uncertain economy. 

Does that mean you shouldn’t do it?  Heck, no.  As the events of the past decade have played out, “employment stability” appears to have evolved into a rather quaint notion, evoking feelings of nostalgia even for many with so-called full-time permanent jobs.  So it could well be that the bigger risk lurks in staying at your current job. 

Risks, risks everywhere.  So what do you do?  Start by reading this:

In the article A top 10 list for all the risk-takers among us, Boston.com’s Scott Kirsner offers up some excellent ideas for mitigating the risks of taking the leap from employed to self-employed.  Check it out before you stop by your boss’ office to say “buh-bye”…

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.

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.

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.

Oh, and about that Pink Slip Lemonade drink recipe… in case you didn’t catch it on Twitter earlier today, Chef Patti of Anastasia’s Table personal chef service has completed her testing and released the recipe for Pink Slip Lemonade… just in time for the weekend. Enjoy!

In my article Survival Skills: Man vs. Wild Economy in last month’s NEW MEANS News, I discuss how cash is the water that enables an unwitting participant in a wild economy to survive.  For those in or perilously close to the land of the laid-off, the case for cash cannot be overstated.  Without reserved cash (water) to get you through a dry spell when access to a fresh supply is cut off, the system starts to break down, and things start to get ugly, in a hurry.

So if you do one and only one thing to thing to survive the wild economy, my recommendation would be this: calculate how much money you’d need to cover living expenses through a period of unemployment, and pull out all the stops to fill up your Emergency Fund with that amount. 

• How to calculate?  Use the New Means Cash Flow Questionnaire, mint.com, Quicken, MS Money, or pad/pencil to figure out what you need to pay the bills each month.  (Don’t forget those paid annually or semi-annually like real estate tax.)
• How long?  Research how long it’s been taking others in similar situations to find new work.  Check both online and locally, perhaps via job search networking groups such as Network for Work.
• How to save?  Read the Survival Skills article for ideas on how to scrape together cash, even if you think you’ve exhausted all the possibilities. 
• How to invest it?  Put this money in the safest, most stable vehicle you can find: a savings or money market account, maybe a portion in a CD, preferably all FDIC-insured.  Yes, it will earn a paltry return, but making a killing is not its job.  Being around if and when you need it is.

Then, once back in a safer, more predictable environment, you can put this precious ingredient (cash/water) to more interesting use – as a key component of Pink Slip Lemonade. 

Being on the receiving end of the news that — along with much of the company — I’d been laid off, going from essential contributor to essentially expendable in a matter of minutes, was a gigantic, world-view-shifting wake-up call.  Well, OK, I’d been inching towards an escape from my position, company, industry… for quite a while, but somehow I always imagined the timing would be up to me. Ha, sweet kid!

At first, I was none too pleased to be among “the chosen,” but over time, I began to see this as one of my lucky days.  Frankly, were it not for being shoved, I don’t know how long it would have taken me to muster the courage to jump off this particular cliff. Not usually one to “jump and grow wings on the way down,” I am thankful for the nudge.

The other thing that allows me to be grateful is that, on some level, I had been preparing myself for a shift for quite some time.  In fact, it would be fair to say that, before I even finished my Electrical Engineering undergrad degree, I already wanted to do something else.  Problem was: I didn’t know what the something was.

In a classic case of not seeing my own nose in front of me, it turns out that “something” must have been financial planner all along.  And I now know that because (consciously or no) I had already been doing many of the things that a financial planner would recommend to a prospective career changer:

• Spend beneath your means
• Avoid “bad” debt
• Save money from raises & bonuses
• Take advantage of employee benefits
• Invest Escape Fund (i.e. money for the transition) conservatively

There was also plenty I woulda, coulda, shoulda done, but didn’t. For starters:

• Review insurance coverage, especially health insurance
• Research career options
• Get a home equity line of credit

As Pink Slip Lemonade month continues, look for details on these and other ideas for prepping yourself for a period — voluntary or otherwise – of earning less, as well as Parts II & III on what to do in the immediate aftermath of layoff, then later once your transition is complete.  Happy Trails!