How to evaluate and plan your finances before a career change
By: Ajay Krishnan
Tags: Careers, Entrepreneurship, Finance, Startup, Money

Bored of your day job and planning to start your own company? Or tired of the cubicle and want to get in to the field with a Biz Dev job and meet more people and close deals? Transitioning from the military and figuring out your second career?

Sort out your personal finances first.

More than two years ago, when I decided to hang my boots in the military and try my luck in the corporate world, I had no idea this would be that important. I thought it would be so easy for me to get a job outside and I would seamlessly transition from boots to suits.

If only life was so easy.

Sit down and make a note of your financial position before you quit your current job

Not only did I not get a reply to a single job application for more than three months but I also had to take a salary haircut at my first corporate job. Thankfully, I had done a decent job at taking stock of my finances and planning ahead. But in hindsight, I could have done better — a lot better. What did I learn from my journey of a major career transition with respect to my finances? Here we go.

Debt is Death

If there is one prudent financial habit that you can have, it is to get rid of your debt as early as possible in your life. With a debt being paid off with interest, any extra income you make is virtually worthless. And keeping in mind that during a career transition you may have to go without a paycheck for months, debt will become a huge burden on you. So, cut back on your spending — even new investments — and pay off Mr. Shylock.

Stay away from immovable assets

Real estate and other property investments must be avoided at this time. They are very hard to monetize at short notice, and your precious cash gets stuck in such deals — leaving you in the lurch in case of any emergencies during the lean transition period. If you indeed hit a roadblock and need immediate cash, you might even be forced to sell off the property at a cheaper price due to your situation. This puts you under further financial pressure while already coping up with the stress of potential unemployment. I made this immense mistake by buying a house just a year before I decided to leave the military — a decision I still repent.

Real estate investments should be avoided if you plan on changing careers soon

Mutual Funds are your friends

Even with the global economic downturn, the stock market is doing decently well and it would be foolish not to leverage it. Mutual funds gives you the opportunity to invest in small amounts that uses the power of compounding to give you higher returns without having to worry about trading yourselves in the market. A professional fund manager takes care of your investment and ensures that the fund makes money — because his commissions are dependent on it too. If you have a year or two before you change your career, this is a must-do to improve your financial position by the time you are out of a job.

Expenditure = Income-Savings

Always the golden rule of handling personal finances. If you are a salaried professional, make sure that you put away at least 30% of your paycheck in to a savings account that you don’t have easy access to. I told my bank not to issue me a debit card for my savings account so I would not be able to spend money from it on impulse. Instead, I kept a debit card for my checking account where I used to park the rest of the money after saving and spend from there. This helped me to avoid my impulse-buys especially on Amazon and save cash.

Invest in a good health insurance

Career change means a lot of uncertainty. Lean periods usually come with added problems, as if things were not already bad enough. A health issue, or a hospitalization can set you back by a considerable amount if you don’t have a good coverage on health. So, go ahead and upgrade your health insurance if you already have one or sign up for a good one in case you don’t. Everything is important until you are sick — then your health becomes the only important thing.

A health emergency can seriously dent your finances — ensure you are adequately insured

Personal finances play a major role in giving you the confidence you need when you are making a career shift. Without that, you will be pressured to accept jobs that you really don’t want or even go back to the 9-to-5 grind (that you hated) in case you couldn’t sustain or scale your start-up. Be prudent, think ahead and do not make the mistakes that I did.

Next, we will see how to build your network and boost your social media presence.

Good luck!

(P.S : — This story is a part of the Military to Corporate : The Essentials series. However, I feel that these tips are relevant for anyone going through a career transition. Feel free to read, share and give me your valuable feedback!)