Do you feel like it’s time to change jobs or start a new career but you’re worried about your financial situation and how long it might take before you find your next job in a new career field?
Stick around to find out how much money you should save before making the switch…
First, calculate how much you spend each month
Start by getting a good idea of your current monthly expenses, write it all out or type it into a spreadsheet. Learn to create a budget while you’re at it.
If you’re currently employed and you’re not expecting a pay raise or bonus for the next few months (which is probably one of the reasons you’re looking for a job change), this will be easy since your current salary will act as the baseline for determining your savings.
To find out how much of your income you should save, divide the amount of Step 1 (your current monthly income) by 12 and then multiply that by 100 to get a percentage (for example $5,000 / 12 = $417.50 x 100 = 42%). So in this example, 42% of your income is going toward your monthly bills.
Step 2: Calculate how much money you will need before changing jobs so that you have enough saved away during the switch without having to worry about emergencies or not making bill payments.
Identify what you should save up, like car payments and medical expenses.
You should obviously save up enough money to cover your expenses like car payments, medical bills, and other emergencies.
It’s important to have an emergency fund so that you don’t have to go into debt when something unexpected happens.
Take two or three months at most to track your spending habits and see where your money goes each month. Then ask yourself: What would happen if I lost my job tomorrow? How long would my savings last until I found another one?
Set aside money for bills and other monthly expenses
Next, add up the total amount you pay each month for your expenses such as your utility bill, water/sewage, etc. (This will be different for everyone depending on their situation.) Lastly, subtract this number from your monthly income to find out how much money is left over that you will put into your savings each month.
After calculating how much of your income goes towards paying your bills and other expenses, decide how much money it would take for you to feel comfortable enough in your savings before changing jobs so that you could cover your monthly expenses if something were to happen while you are in the process of changing jobs.
Save up enough to live without personal income for more than three months if you can.
It’s always a good idea to have enough money saved in case you lose your job, whether it’s the one you’re leaving or the one you’re going to.
In addition to being prepared for the financial stress of being without work, saving up is also a great way to make sure that the new job you find is as stable as possible. Being able to stay afloat during times of change like this will keep your mind at ease and help you focus on doing well in your new job.
If there are any expenses associated with moving into or out of an apartment or house when changing jobs, save up for these as well (or use credit cards wisely). You might be tempted not to worry about those things because they won’t affect how much money comes out of your paystubs each month.
However, if you look back after six months of having no extra income coming in from personal sources of cash flow like loans and savings accounts—and especially if that period stretches past three months—you may regret not having saved up enough money before starting this job change.
If you want to switch jobs, it’s wise to save up a sizable nest egg first.
If you want to switch jobs, it’s wise to save up a sizable nest egg first.
For example, if you have a family and they rely on your current job for income, it’s important to have enough saved up before changing careers so that you and them can live without this current income for more than three months in case of an emergency.
This is especially true if the new job doesn’t pay as well as your current one or requires training time away from work—some career changes may take longer than three months before you are earning a similar type of money in your previous career.
It’s also wise to consider how much money is required for the new career path and whether there will be any financial support from friends or family members while starting in this field (for example, if they’re willing to help cover living expenses until the job begins). If this isn’t possible or desirable for some reason, then saving up enough savings might be even more essential!
Hopefully, this article helps you get from where you are now to where you want to be in a new career as best prepared financially as you can be.