How to Prepare Financially for Changing Careers

One of the biggest disadvantages of starting a new career is finding yourself in a lower pay grade. In your own field, your experience may be valuable, but your new employer sees you as someone who's still got a lot to learn.

So if you're going to be taking a large pay cut, here are 4 steps to prepare financially.

First, know what you spend.

If you have a budget and track your spending, then you can skip this part. Don't panic, you won't have to make a budget (though a general spending plan might help once you're making less money).

To find out what you spend, collect all your receipts for 30-31 days. If someone doesn't give you a receipt, write down what you paid and why on a scrap of paper. Keep all these in something convenient like a basket in the living room. At the end of the month, pull them all out and find out what you spend. Make some general categories like "Groceries," "Clothes" and "Gas/Car."

Don't bother putting them in order by date or anything fancy, you just want a general number.

Second, figure out what you absolutely must spend.

This would be things like rent, car payments, etc. You may be able to slash some categories by eating out less often or eating more beans and less meat (you're the one who wanted to switch careers, remember, we're doing this for your overall happiness).

Third, build an emergency transition fund.

If you don't already have money saved, build a savings account of at least a thousand dollars. This isn't a conventional emergency fund, but is there specifically for emergencies as you're transitioning into your new job and lifestyle.

Maybe the car breaks; maybe you underestimated how much your commute will cost. This fund is to help smooth your transition. It's not there to subsidize your lifestyle.

Fourth, if you're able, build a cushion to subsidize your lifestyle.