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A change in your career can be both exciting for a next step in your journey, as well as bringing with it angst of the unknown financial impacts. However, there are some opportunities that can have significant positive impacts on your financial position from these changeovers. There are also key considerations and items to remember before entering any change, explored further below.
A voluntary change in your role or career can be much easier to navigate and plan for, as it’s typically done to your chosen time frame. Beyond the mental shifts around enthusiasm for work or drive and passion, there are financial gains which can be made in changing over a role. The key driver for a lot of changeovers is looking to increase your overall salary to uplift day to day cash flow. Whilst this is a positive outcome over the longer term, it is important to consider the near term impacts, which can have a significant positive impact.
When planning for a career or job change it is important to remember a few key areas including:
Duration of time to be taken off
Whether you are intending to shift immediately into a new role, or having a sabbatical, the time without ongoing income is a key portion to consider. This allows you to reverse engineer what costs you may need to cover so you can either build that into projections from any payments out or look to generate a cash reserve or savings buffer in the interim. The earlier you can plan these considerations the better the outcome will be. In finance, more time always equals a higher probability of success.
The ‘timing’ of the changeover
This timing, coupled with the above, you need to consider whether it is best to make a switch on or around the financial year to have payments fall into a separate year comparative to the bulk of your day to day income. In the case of a sabbatical, it can make more sense to do this so you are isolating these payments from your other assessable income.
The potential change in income comparative to your current day to date expenditure needs
A handy tip here is to gauge what this is likely to be, and then adjust for any payment of leave balances to bridge the gap. For instance, if you are going to be moving into a role that is paying ~$10,000 less over the course of 6 months, build that into the projections you get from payments out. This provides a buffer zone whilst you look to adjust/adapt to your new regular income source coming through.
Review your insurances
With a lot of changes in the insurance industry, it is key to review these before any changes. You may have employer endorsed contracts which you will need to choose whether to continue these on (if possible), or you may have personal policies which definitions may be impacted with the cessation of work. In any case it is vital to check on these before shifting on any role.
Involuntary changes (i.e. redundancies) typically bring the highest amount of anxiety to a person’s financial situation, but it’s important to look at the positive outcomes that can be brought by this change too! Looking at a general situation, if you are in a position where a redundancy is forced onto you, or even if you are offered one, it can shift your balance sheet quite significantly (if you play out the scenarios carefully). The opportunity to bring forward lump sum amounts (termination payments) coupled with the ability to navigate into a new role (which may be similar paying or perhaps a little lower) is a powerful position to be able to use for your longer-term benefit.
As an example, if you were earning $150,000 per annum (including super) and you were offered a redundancy, and say the package with leave payments came to around $60,000 (net of tax), and you then secured a new role that was paying a lower salary, say $130,000 per annum (including super), the upfront payment of redundancy/leave entitlements would ‘bring forward’ about 5 years off that differential in wage.
This can then be used to offset debt/build cash reserves, or if closer to retirement age, looking at building up liquid assets (such as superannuation). The compounding benefit of using this move to your advantage can greatly assist your financial position. If we assume the $60,000 payment is used to then offset debt, at current rates (6.10%) this would save $3,660 in interest a year. With this into consideration, the total net income differential in shifting from $150,000 per annum to $130,000 per annum would only be $8,537 (based on current tax rates), or around 7 years of a ‘gap’ when comparing to the $60,000 payment.
In summary, a change in role can bring a lot of excitement for that new challenge, and whilst the unknown financial factors can cause some angst, there are plenty of opportunities to use this position to your advantage, and better your overall position from this change. As with every part of your financial position, having a plan/consideration for these events will increase our chance of success.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
