This is an excerpt from an ebook I wrote about finding money for a life transition. I sell the ebook on another website.
Personal Finance: Create a safety net (so you won’t crash and burn on the way to your dream)
Career changers often call a consultant to ask, “Should I give up my job and move to Montana?” Or, “Should I quit my job to start a business?”
They’re concerned — rightly — about risk. Specifically, they’re concerned about financial risk. If you make a mistake, you could find yourself deeply in debt or unable to make mortgage payments. When you have a family, the risk will seem even greater.
Even more: When you’ve been working ten years or more, you achieve a level of income that’s hard to replace in a new career. Yet you may find yourself in a situation where you absolutely have to change jobs or even career fields. Your job can be outsourced overseas. Your whole industry can become instantly and unexpectedly obsolete. You could get a new management team that’s toxic to you and your work culture.
Or you could simply wake up one day and realize, “I hate this job. If I continue I will spend my entire salary on psychiatric bills.”
Manage Your Risk During Your Career Change
Imagine that you decide to walk across a room on a high wire. If you fall, you land on a hardwood floor. Ouch! You’re accepting a high risk of injury, pain and even disability.
You probably have no desire to do this, but now suppose you believed there was a secure safety net under the wire: a pile of very soft, very large cushions. Fall and you’ll land softly and safely.
Would you be more comfortable taking the risk? Would you have fun dancing on the wire, perhaps trying out some daring moves?
Or think of driving down a narrow driveway, with a steep drop-off on one side. With a guardrail in place, you can drive faster than you would otherwise.
Your Financial Safety Net: The Key To Freedom
A safety net is anything that lets you dance on the high wire (or take a tight mountain curve at forty miles an hour). It’s whatever makes you feel safe.
Your financial safety net can be cash stored in a savings account; a flexible career, such as medicine, accounting, law, or house cleaning; a supportive family; a working spouse with a secure job; and/or a retirement income.
It is important to remember that one person’s safety net will be another person’s cobweb.
And it’s important to realize that any one of these components could change overnight. Your spouse could lose his secure job. Any career can be threatened by changes in the legal or social environment; even physicians sometimes are forced to close their practices or change their hospital affiliations unexpectedly.
Why Cash Should Not Be Your Only Financial Safety Net
Cash gives you a finite resource. Once it’s gone, you’re back to Square One.
Sam felt comfortable starting a business after he’d saved a large cash reserve. Once the business was underway, Sam’s reserve seemed smaller and he began to reconsider his decision. He wasn’t sure how he’d replenish his account as he drew it down.
You may have resources that can continue to deliver money over time: rent from a property you own, income from a significant other, skills that are in high demand.
And once you’ve danced on the wire, you won’t want to land on the floor with a thud.
Why A Day Job Is Not A Safety Net
A day job can disappear even more quickly than a career. Even worse, it’s easy for you to get tired of your day job and feel more miserable than before.
In her book, The Cinderella Complex, Colette Dowling describes a fortyish college professor who left her teaching job to seek a career as a film director in Los Angeles. To make ends meet, the woman sold her house in the midwest and accepted a day job as a tax preparer.
Months later, she realizes she hates her day job more than she ever hated her teaching job. She also realized that she needs twenty years to become a film director, and she will be sixty when she gets her first job. Los Angeles is a city of youth.
Fortunately, she had taken a leave of absence, so she was able to return, poorer and wiser.
When Someone Else Seems To Be Living Your Fantasy
Every so often you’ll hear people say something like, “I sold all my possessions and moved two thousand miles, to a city where I knew nobody. In just a few months, I had a profitable business, a great place to live, and some wonderful new friends.”
First, that statement may not be true. The speaker might honestly believe it’s true, but he might be omitting some key details. Maybe he had a couple of successful businesses under his belt. Maybe he had a stash of cash. Maybe he had wealthy parents who sent him $50,000 a year, tax-free, for their own tax-planning purposes.
Second, this type of risk-taking must come from you. If you have to ask a coach (or a handful of friends) for advice, or you need “permission,” this move is wrong for you. No reputable, responsible career consultant will recommend this type of “jump off a cliff” move.
Your Safety Net Depends on Your Risk Tolerance
Some readers will sleep soundly if they have twenty dollars in the bank and no way to pay the next month’s rent. Others toss and turn when their income goes below $250,000 a year.
I have worked with both kinds of clients. Neither is “right.” But you need to know your limits – honestly.
So…how much should you save?
For most clients, I recommend setting up an account with a minimum of one year’s living expenses. Two years would be better. If you’re younger than 59-1/2, these funds should be separate from your protected retirement accounts. See a financial planner to discuss retirement vs. safety net, especially if you’re over 50. The tax laws change fast and each asset portfolio must be evaluated individually.
Why “I can always” means “probably never.”
Marianne consulted me about starting a business. I asked how long she could survive on her savings.
“A year,” she replied. “Maybe a little longer.”
“Some businesses take a while to get off the ground,” I reminded her. “You may need more than a year. Or you may discover you hate the business, or some uncontrollable event has made your business obsolete or unmarketable.”
“I thought about all that,” said Marianne, “and I can always take a job at X Company. I’ve worked there before and they said they will make a place for me.”
“But suppose six months down that road, you fear the business is growing too slowly. You may have a personal emergency that calls for cash. Now you’re in a one-down, weak position. You really need a job.”
“I can always go back…”
“Maybe! You’ll be different. The job will be different. And do you have a promise in writing? Often when you leave a corporate job, you’re entering a one-way street.”
“If you take a job later, out of need, you will be in a one-down position. You show up, hat in hand, asking for work. You will not feel as free and you may even feel trapped.”
The stress of career change can affect your judgment.
You’ve been an achiever all your life. So when you find yourself unexpectedly tossed overboard, you want to get back ashore as quickly as possible. Better to swim awhile to figure out what’s going on.
Clients often call me, embarrassed by a sequence of mistakes. As soon as they were laid off, they swung into action. They signed up for a self-improvement program that promised miracles. They hired a coach who was on a whole different wavelength. Sometimes they even sold their homes and moved to another state.
Think you’d never do this? Neither did they. Stress distorts judgment and nearly everyone tossed out of a comfortable lifestyle will be stressed.
For example, you agreed to move to another state to accept a promotion. After all, the money is good. The cost of living seems lower. And frankly, there weren’t too many options back where you came from.
Six months (or six weeks) after you arrive, your company announces, “We are closing this division. You will soon be out of work.”
Your first step should be to defuse your emotions. It is very, very easy to act out of panic and fear.
You might need some creativity to deal with this situation. If you have negotiating power with your employer, see if they’ll fund a career consultant or coach, chosen by you.
It’s often a good idea to take a temporary job to bring in money. You might even choose to take a low-paying job with benefits. As of this writing, companies like Starbucks and Patagonia offer benefits to employees working as few as 20 hours a week.
It’s never a good idea to spend money on a person or company who promises a quick fix. Examples include hiring a resume blasting service to find you a new job right away (they’re almost always scams); entering a training program without comparing half a dozen opportunities and talking to graduates; moving to a new city because your wife’s cousin knows somebody who could get you a job.
Airline pilots, military members, police officers and firefighters drill for emergencies. Your emergency may not be as drastic, but you can still do some advance planning.
Learn the difference between abundance and recklessness (because it’s hard to feel abundant when Visa wants a payment right away)
The concept of “abundance” has been getting a bad rap. After all, many people have been advised to express abundance by spending money they don’t have or simply spending money. Thom Rutledge, author of Embracing Fear, wrote about the time he decided to affirm abundance, only to wind up with a heap of credit card debt.
For a helpful discussion of abundance, I recommend Rick Jarow’s book, Creating the Work You Love. Jarow reminds us that abundance isn’t necessarily tied to wealth. I love his story of a millionaire who didn’t want to spend an extra dollar on ice cream. I know a millionaire just like that!
There’s a fine line. We don’t want to interpret abundance as recklessness or as an admonition to “Enjoy more happiness with less wealth.”
On the other hand, some people have a scarcity mentality that becomes a self-fulfilling prophecy. They worry about running out of money. They avoid risks and become paralyzed. And often they really do see financial losses.
Career change creates a financial risk. Your challenge, as you move between careers, is to create a safety net that gives you the confidence to make your move to freedom. You won’t go off the rails and you won’t fall on a hardwood floor.
At the same time, each person’s risk profile will be unique. Some people feel completely comfortable when they have just a few dollars in the bank and no job in sight. With just a few universal guidelines, you can decide what makes most sense for you. And in a surprisingly short time, you can be well on your way to a more satisfying career with your bank account and your peace of mind intact.