How to afford a career change

Changing careers, rather than just changing jobs, can often give your life the lift it needs. However if it means taking a pay cut or you need to pay for training, you’ll need to make sure your finances are ready before you hand in your notice.

Where to start

In an ideal world you’ll have a new job – or at least a plan in place – by the time you finish your existing one. That’ll make things easier financially. 

However, that’s not always possible. You might need to study for a new qualification or spend some time training. If you can’t afford to take an earnings break you could end up in a tricky financial situation. 

Can you afford it?

There are two things to ask yourself before you go ahead with your new career.

• Can you afford to live while looking for a new career? If you leave your job to find your ideal career, make sure you have the money to cover your outgoings in the meantime. If you don’t have a job lined up straight away, you could struggle to pay your bills unless you have money available to you. Try to save enough money to cover your monthly outgoings for at least three to six months. This will help a lot if you find it hard to find the right role straightaway.

• Will a new job pay you less?  If you  go for a complete career change, you might have to  start right at the bottom and accept a significant pay cut.This could have a huge impact on your lifestyle especially if you have a mortgage, family responsibilities, or high outgoings each month. Look into how much you can expect your new career to pay when you first start out, and once you’re experienced. This will help you to plan your future. And, if it would mean taking a pay cut, you could try living on your new salary before you make the move to see how you get on.

How to prepare yourself financially

Changing careers can be worrying. ? Will you enjoy it? Will you be successful? Will it take you a long time to learn the ropes in a new role? Will you have to start at the bottom? Will you end up spending your life’s savings on making the change? Will you earn enough?

Money isn’t the only reason people change careers. Often they want to do something more enjoyable or less stressful. They might want to be able to spend more time with their family.

However, taking the time to think about money and how you will cope during the transition will give you one less thing to worry about. There are several ways you can prepare yourself for this.

Boost your savings

If you don’t have savings … put away as much as you can before leaving your job.

If you do have savings … make sure you can withdraw the amount you need whenever you need it. For example, if your money is tied up in a fixed term or notice account, you could get penalised for withdrawing money without giving any notice. Check the terms and conditions so you don’t get any nasty surprises when you need the money.

Saving money can be the best option for someone who’s risk averse or for someone who has a lot of responsibilities. It’s a way to make your career change possible without getting into debt. 

Having an emergency fund can be reassuring. You’ll have to think about how much money you’d like to have banked beforeyou take the plunge. Would six months’ salary cut it? Three months? A year? It all depends on your personal situation, your responsibilities and feelings towards risk. 

The more you save, the more breathing space you’ll have when you begin your new career. If things don’t quite go to plan, this could be particularly important.

Which savings account should you use?

Streamline your spending 

It’s a good idea to create a budget to find out exactly how much you spend each month, and on what.

This’ll help you work out where you might be overspending and where you could save some money if needed.

For example, it could highlight that it’s time to cancel that gym membership that you never use. Or perhaps it’s time to stop treating yourself to that daily, overpriced coffee. Over the course of a year, this could reduce your outgoings a lot.

Checking your bank account daily can be another good way to help streamline your spending. You’ll realise more quickly if you’ve overspent a bit, and can then aim to hold back on your spending over the coming days.

Consider getting an overdraft

If you have a current account, you might be eligible for an overdraft. An overdraft lets you go into a negative balance on your account when needed.

Contact you bank or building society and ask:

• What overdraft facility do you have already?

• Can you get a higher overdraft, if needed?

• What interest rate do you pay on your overdraft?

When you use an overdraft, you pay interest on the amount you use. Many banks charge in the region of 40%, so if you think an overdraft facility will be important to you it might be worth switching accounts before you give up your current job.

You may even be able to get an account which offers 0% overdraft for a set term. These 0% overdrafts are often available for 12 months, which could be handy while you establish yourself in your new career.

A 0% overdraft gives you access to money, without the need to pay it back each month. However, you’ll need to pay your overdraft back in full by the end of the 0% term, or you’ll start paying interest.

Use a credit card to tide you over

A credit card lets you spend up to the limit on your card. You can then repay the balance over as many months as you want, you just need to be mindful that the longer you spread it out, the more interest you’ll pay overall. 

If you already have a credit card … you could use it to cover any expenses you face when looking for a new job. It might however make more sense to switch to an 0% card if you don’t have one already. 

If you don’t have a credit card … you could apply for a new 0% interest on purchases credit card. This lets you spend without paying interest, up to a set term.

You do have to pay a set percentage of your balance each month when you spend on a credit card. For example, this could be 1% of your balance, or a minimum payment of £5, whichever is higher.

However, make sure you're using our credit card responsibly. Remember that you're only using it to help you get through the lean months while you're not working and have no income. It can be easy to rack up a lot of debt, so only use your credit card for essential spending.

Here’s how to use a credit card.

What else could I do?

Sometimes, for the sake of a career move that you’re absolutely desperate to make, you could take drastic measures.

For example, if you think the career move is worth it for your future happiness or potential, you could consider downsizing your home. Alternatively, if it’s an option, you could think about moving in with family for a period of time while you find your feet in your new career. You could think about setting a clear deadline by which you want to either live independently again, or upsize again.

If you’ve got time on your hands, you could also think about getting a second job. A ‘side gig’ can be a great way to boost your income.

And, if you need to study in order to break into a new career, you could think about doing this while you’re still working and earning. Some universities – such as The Open University – offer flexible distance learning. This can be a way to gain qualifications while you’re still working full-time. Of course, you would need to look at funding your studies too, and it can be a big commitment to study while working. 

Such big changes aren’t for everyone, but there’s certainly lots to consider if you have the time and could do with the money to support your career change.

Can you claim benefits? 

Universal credit exists for people who are out of work, cannot work or are on a low income and pays a monthly benefit.

However eligibility rules are strict and you may have your benefits sanctioned for a period of three months if you left a job voluntarily. You also won’t be eligible if you or your partner have savings worth more than £16,000, or if your partner earns enough to support you.

Visit gov.uk for more information on Universal Credit.

The charity Turn2Us has a helpful benefits calculator that can help you work out what benefits you might be entitled to.