Want to join the great resignation (or job change) wave? Can you afford to?
Editor’s note: This is part two of a six-part series on the great reevaluation business owners and executives are experiencing this year.
Great resignation? Or great reevaluation?
National polls show that the number of people re-thinking their careers continues to climb.
Nearly 1 in 3 U.S. workers under 40 have considered changing their occupation or field of work since the COVID-19 pandemic began, according to a . Over 50 percent of respondents to a survey said the same.
For these people – and many others – the pandemic offered a wake-up call about what’s important in day-to-day life and the legacies they leave behind. Some want to work less, work for themselves or dedicate their talents toward more meaningful work.
But can they afford to?
Not a leap of faith
If you’re a business owner or entrepreneur, a career change may not seem like a big deal. You’ve built from the ground up before, right?
This time, there could be more financial considerations at stake. Careful planning can protect any wealth you’ve accumulated and use it to fund a more-fulfilling, tax-advantaged future.
Weigh these four financial considerations before changing employment or sources of income:
1. Financial life plans
Take a fresh look at your household budget and lifestyle expenses and compare those against your future earning potential. Will you have what you need?
Sometimes it can be hard to tell. If compensation is awarded differently in a new job, say through stock options or bonuses, you may need help mapping out how a career change will affect your financial future.
Different forms of compensation change your monthly and overall earnings, as well as your tax liability. Certified financial planners can help you estimate what a job transition could cost tax-wise (especially if you’re eligible for a severance package or taking a buyout) and offer strategies to mitigate the impact.
Financial planners and a tax CPA together can also review your compensation plan to ensure your new career path doesn’t delay longer-term financial plans, like retirement or gifting strategies.
2. Budget
What would make a career move worthwhile? If you’re looking for more flexibility, fewer hours, or nonprofit work, then you may not be chasing a bigger paycheck. In that case, make sure your new job can cover all your living expenses, or that you have a secondary source of income to fill the gap. Interest income or business proceeds could supplement what you’ll be earning.
When budgeting, job-changers often overlook tax- and insurance-related expenses. If you switch to contractual work or self-employment, you’ll become responsible for quarterly estimated tax payments. If you don’t factor those into your budget upfront, you could get a jaw-dropping tax bill (and possibly penalties) at the end of the year. It can also distort your actual earnings.
Insurance coverage, education and training, time off and equipment expenses may need to be factored into the budget, too. That can make the lines between personal and professional finances a little blurry. Make sure both perspectives are accounted for in your new budget and financial plan, and that goals for both stay aligned.
3. Building up funds
A new career path may require startup costs. Or payments could become irregular if start your own gig. Before making a change, build yourself a safety net.
If you contribute to a retirement account today, such as a company 401(k) or an individual retirement account (IRA), consider increasing contributions before you leave to make up for any lost contributions.
You also should create an emergency fund of liquid savings. The general rule of thumb is to put away three to six months’ worth of living expenses into an emergency fund. Choose a low-risk savings vehicle, such as a money market or a high-yield savings account, so your money will be there if you need it.
Get the big picture
Work is a big part of life – but it’s not what life’s all about. Certified financial planners and CPAs can make sure your next career supports your overall life ambitions.
Professional advisors can also free you from the stress of comparing and untangling different compensation and tax strategies. They can present and explain options, tailored to your goals and risk tolerance, so you can make informed decisions about your future.
Ultimately, a career change should move you closer to the personal life you want.
How we can help
Wipfli can bridge the gaps between your financial, business and personal priorities.
Our expertise in business and personal wealth management helps you manage your whole financial life. We make sure tax, estate, business transition, retirement and wealth management plans are aligned with your personal and professional goals. Find out how on our private client services web page.
About our series
Have you been thinking changing your life? You are not alone. Millions of other Americans are also weighing whether or not to change their future in what has been called “the great reevaluation.” From careers to finances and to families, our team provides guidance to help you make that decision. Learn more on and see other parts of our series on our Great Reevaluation series web page.
