Can I Afford to Change Careers? A Financial Guide to Making a Career Change

How Do You Financially Prepare for a Career Change?

To financially prepare for a career change, calculate what your life will cost during the transition, estimate how long it may take to begin earning your new income, and save enough accessible cash to cover that gap. Include expenses that may change when you leave your current employer, especially health insurance, while accounting for expenses that may disappear, such as commuting or certain childcare costs.
You should also understand the compensation and benefits you’re leaving behind, including bonuses, equity and retirement benefits. If you’re starting a business, your runway may need to be considerably longer because revenue can take time to become consistent. The goal isn’t to replace your old salary immediately. It’s to know how much your transition actually costs and have a plan to fund it.

A career change doesn’t have to be a financial leap of faith. Treat it like any other major financial goal: figure out what it costs, determine your runway and start funding it before you make the move.

At 18, we’re expected to choose a career with very little idea of what we’ll actually want our lives to look like at 30, 40, 50 or 60.

Then somewhere along the way, changing our minds starts to feel financially irresponsible.

You have a salary. Health insurance. A 401(k). Maybe a bonus coming. Kids who depend on you. A mortgage. A lifestyle built around the income you make today.

Walking away can feel impossible even when you know you don’t want to spend another 10 or 20 years doing the same thing.

But career changes don’t always happen because someone suddenly gets brave enough to quit. Often, what looks like a leap from the outside was actually a financial plan that took months or years to build.

In this Purse Strings Money Talks, financial planner Bill Promes shared his own experience leaving a 19-year career in IT at Schwab to become a financial planner and business owner. We talked about the numbers women should put on paper before changing careers, taking a sabbatical or leaving a job to start a business.

The first number isn’t your old salary.

It’s what your life will actually cost during the transition.

You May Not Need to Replace Your Entire Salary

When people think about changing careers, it’s easy to start with the biggest number on the page:

“I make $120,000 now. How am I supposed to walk away from $120,000?”

But your salary isn’t the same as the amount you need to live.

Some expenses may disappear or decrease when you leave your current job. You may no longer commute five days a week, buy lunch near the office, pay for parking or need the same childcare arrangement.

Other expenses may increase dramatically.

Healthcare is one of the biggest examples. If your employer currently subsidizes your health insurance, leaving may mean paying for COBRA, joining a spouse’s plan if available or purchasing coverage elsewhere.

That’s why your first step isn’t figuring out how to immediately recreate your salary.

Figure out what your life will cost after your job changes.

Review your current spending, remove expenses that realistically go away and add expenses you’ll take on yourself. That gives you a much more useful monthly number.

Calculate Your Financial Runway

Once you know your monthly cost of living during the transition, you need another number:

How long might the transition take?

That’s your financial runway.

If you expect to need $6,000 per month and believe it could take 12 months to establish your new income, that’s a very different plan than needing $6,000 per month for three months.

This is also where the traditional three-to-six-month emergency fund may not be enough.

An emergency fund is generally designed to protect you from something unexpected. A career transition is different because you’re intentionally planning for a period when your income may decrease.

Bill recommends researching how long the transition typically takes in the field you’re entering rather than guessing. When he moved into financial planning and started his business, conversations with people already in the industry helped him understand that building a profitable practice could take years, not months.

Your new field may be completely different.

The point is to find out before you quit.

Talk to People Who Have Already Made the Career Change

Google can tell you what a certification costs.

Someone who made the career change five years ago can tell you what surprised her.

If you’re considering teaching, consulting, financial planning, real estate, opening a retail business or moving into an entirely different profession, find people who are already doing it.

Ask how long it took to generate reliable income. What did they underestimate? What did they spend before earning their first dollar? Did they work on the side? How much savings did they wish they’d had? What would they do differently?

Bill credited his professional community with helping him understand both the financial reality of starting his business and the emotional ups and downs that came with it.

Your runway shouldn’t be based exclusively on your best-case scenario.

If people in the field tell you it usually takes 18 months to become established, building a six-month plan and assuming you’ll be the exception creates unnecessary financial pressure.

If You Can, Test the New Career Before You Quit

You don’t necessarily need to go from full-time employee on Friday to brand-new entrepreneur on Monday.

If your current employment agreement and circumstances allow it, you may be able to start learning, training, networking or experimenting with the new career before leaving your current income behind.

A side hustle can be particularly useful when you’re considering entrepreneurship. It may generate some income, but just as importantly, it gives you information.

Do people actually want what you’re selling? What does it cost to deliver? How long does it take to find a client? Do you even enjoy doing it when someone is paying you?

Testing the idea while you still have a paycheck can reduce the number of unknowns you’re funding with your savings later.

Keep Your Career-Change Money Accessible

If you’re planning to use money within the next year or two to support yourself during a career transition, think carefully about where you keep it.

Money you know you’ll need soon serves a different purpose from money you’re investing for retirement decades from now.

Bill discussed keeping transition funds liquid and separate so the money is available when it’s needed rather than depending on what the stock market happens to be doing when you leave your job.

A separate account can also make the goal tangible.

You’re no longer vaguely “saving money.”

You’re funding six months of healthcare, nine months of living expenses, a certification, or the first year of your business.

Watching that number grow can also help turn a career change from something you daydream about into something you’re actively preparing to do.

Know What You’re Walking Away From

Your paycheck isn’t the only thing your employer pays you.

Before choosing your last day, understand the full compensation package you’re leaving.

That may include a year-end bonus, stock or equity compensation, retirement contributions or matching, health insurance, paid time off, pension benefits or other employer benefits.

Timing can matter.

If you’re two months away from a significant bonus or vesting date, you should at least know what you’re giving up by leaving sooner. That doesn’t automatically mean you should stay. There are plenty of reasons someone may decide that getting out sooner is worth more than another check.

But make the trade-off consciously.

Knowing you’re walking away from $20,000 and deciding it’s worth it is very different from discovering the $20,000 after you’ve resigned.

A Lower-Income Year Can Create Tax Planning Opportunities

Career transitions can also change your tax picture.

A year in which you leave a high-paying job, take a sabbatical or build a business may be one of the lower-income years of your adult life.

Bill discussed how that can potentially create opportunities to reevaluate investments or company stock that you’ve been hesitant to sell because of the tax consequences.

That does not mean everyone should sell appreciated investments the moment she quits her job. Capital gains, investment income, household income and other factors all affect the tax calculation.

It means a planned lower-income year is worth discussing with your CPA, tax professional and financial planner before the year is over.

Career-change planning shouldn’t only ask, “How do I survive without my salary?”

It should also ask, “What financial decisions become different because my income is changing?”

Starting a Business? Your Tax Life Changes Too

Leaving employment to start a business creates another adjustment: there may no longer be an employer automatically withholding taxes from every paycheck.

As revenue starts coming in, don’t assume everything deposited into your business account is available to spend.

Track your business income and legitimate business expenses from the beginning, even if you’re using a simple spreadsheet. Talk with a qualified tax professional about estimated taxes, self-employment taxes, deductions, business structure and how much you should set aside based on your situation.

Bill suggested earmarking part of profits for taxes rather than waiting until tax season and discovering you owe money you no longer have.

We go much deeper into estimated taxes, deductions and other tax considerations in our Side Hustle Taxes Made Simple guide.

Don’t Forget the Nonfinancial Return

Not every return on investment appears in a brokerage account.

Maybe changing careers gives you two hours back every day because you’re no longer commuting. Maybe you can pick your kids up from school. Maybe you sleep better. Maybe you get to build something of your own. Maybe you simply don’t dread Monday anymore.

Those things aren’t easy to assign a dollar value.

They’re still valuable.

During the Money Talks conversation, Maggie pointed out that compensation can become a reason to stay even when other parts of the job aren’t working anymore. A bonus might be worth staying another few months. It might not be worth staying another five years.

Financial planning isn’t about making every decision based on which option produces the largest paycheck.

Money is supposed to help you build the life you want.

Sometimes the financial plan is about accumulating more. Sometimes it’s about creating enough flexibility that you can choose differently.

Ask These Three Questions Before You Make the Leap

Toward the end of the conversation, Bill distilled career-change planning into three questions.

Do I know what the time off or transition actually costs?
You should understand your monthly expenses, healthcare costs and how much money you’ll need during the period when your income is lower.

Do I know what I’m walking away from?
Understand the salary, bonus, equity, retirement benefits, insurance and other compensation you’re giving up and whether timing your exit differently could matter.

Do I have a plan for the gap and the return?
Know how long you expect the transition to take, what happens if it takes longer and what your path back into employment looks like if the original plan changes.

If you can answer those three questions with actual numbers instead of guesses, you’re in a much stronger position to decide when you’re financially ready.

Your Career Change Can Be a Financial Goal

We save for houses.

We save for cars.

We save for vacations, weddings and retirement.

You can save for a career change too.

Maybe your plan takes six months. Maybe it takes two years. Maybe you spend five years building the financial flexibility to leave a career you no longer want and spend the next 20 doing something completely different.

The fact that you can’t leave tomorrow doesn’t mean you’re stuck forever.

It means you have a new financial goal to fund.

And sometimes, the thing you’re saving for is you.

Frequently Asked Questions About Financially Preparing for a Career Change

How much money should I save before changing careers?

There isn’t one savings target that works for every career change. Start by calculating your expected monthly expenses during the transition, including healthcare and any other benefits you’ll need to replace, and multiply that by the realistic amount of time you expect your income to be reduced.

If you’re moving directly into another salaried job, you may need a relatively short runway. If you’re retraining, taking a sabbatical or starting a business, you may need substantially more. Research how long people in your new field typically take to earn reliable income and add a buffer for delays and unexpected expenses. Your career-change fund is separate in purpose from a traditional emergency fund because you’re intentionally planning to use it.

Can I afford to take a pay cut to change careers?

A lower salary doesn’t automatically mean a career change is unaffordable. Compare your expected take-home income and new expenses, not simply your old and new salaries.

A new job could reduce commuting, childcare, clothing or other work-related expenses while changing your taxes and benefits. It might also create nonfinancial benefits such as flexibility or additional time at home. Build a before-and-after budget using actual numbers. If the new income supports your essential expenses, savings priorities and lifestyle at a level you’re comfortable with, a pay cut may be financially workable even though the headline salary is lower.

How long should my financial runway be before starting a business?

Your financial runway should reflect how long businesses in your particular industry realistically take to generate enough income to support you. A generic three- or six-month emergency fund may be inadequate if you’re entering a business where profitability commonly takes a year or longer.

Talk to experienced business owners in the field, research startup costs and estimate conservative revenue rather than relying on your best-case forecast. Then calculate how much personal spending and business expenses you’ll need to cover during that period. Adding additional buffer can be especially important if you’re entering an entirely new industry rather than starting a business in a field where you already have experience and clients.

What expenses should I consider before leaving my job?

Start with your existing household expenses, but don’t assume they’ll remain identical. Some costs, such as commuting, parking, work clothing, lunches or certain childcare arrangements, may decrease. Others may increase.

Healthcare is often one of the biggest additions if your insurance currently comes through your employer. Also consider professional training, certifications, business startup expenses, technology, networking, travel and any other costs associated with entering the new field. Finally, identify employer benefits you’ll lose, including retirement matching, bonuses, equity and paid time off, so you’re comparing the complete financial picture rather than just salaries.

Should I quit my job before starting a business?

Not necessarily. If you’re able to test your business idea while still employed and doing so doesn’t violate your employment agreement or create other conflicts, it can give you valuable information before you give up your paycheck.

Starting small can help you understand demand, pricing, startup expenses, customer acquisition and whether you actually enjoy running the business. It may also allow you to build savings or early revenue before leaving. Some businesses can’t realistically be started alongside full-time employment, so the right approach depends on your field, current job, available time and financial resources.

What should I do with my 401(k) when changing careers?

Leaving a job doesn’t automatically mean you need to immediately move or cash out your 401(k). Depending on the plan and your circumstances, you may be able to leave the money in your former employer’s plan, roll it into another eligible retirement account or eventually move it into a new employer’s plan.

Avoid treating retirement savings as your first source of career-change funding without understanding the potential taxes, penalties and long-term impact. Ideally, your transition fund is planned separately so retirement assets can remain invested for their intended purpose. A financial professional can help you compare your available options based on fees, investments, account protections and your broader financial plan.

What happens to my health insurance if I quit my job?

Leaving an employer can mean losing access to your employer-sponsored health plan, although your specific options depend on your situation. You may be eligible for COBRA continuation coverage, coverage through a spouse’s employer, a Marketplace plan or another source.

Research those options and their actual premiums, deductibles and coverage before you resign. Health insurance can significantly change the amount you need in your transition fund, especially if your employer currently pays a substantial portion of your premium. Don’t build your career-change budget using only your current paycheck deductions because they may not reflect the full cost you’ll face independently.

Are there tax benefits to changing careers or starting a business?

A career transition can change your tax situation, particularly if your income drops significantly or you begin operating a business. A lower-income year may affect the tax consequences of certain investment decisions, while business owners may have deductible business expenses and additional tax responsibilities.

The specifics depend heavily on household income, filing status, business structure, investments and other factors. Instead of assuming a career change will automatically lower your taxes, consider meeting with a CPA or qualified tax professional before and during the transition. Planning ahead can help you identify opportunities while also avoiding surprises such as estimated tax obligations.

Is changing careers later in life financially realistic?

Changing careers in your 40s, 50s or later can be financially realistic, but the planning may look different because retirement savings, healthcare, family responsibilities and the number of working years remaining become increasingly important.

At the same time, later-career workers may have advantages that younger career changers don’t, including savings, professional networks, industry expertise and transferable skills. The decision shouldn’t be based only on age. Calculate the cost of the transition, understand how it affects retirement and other goals, and compare that cost with what the new career could add to your life over the years you still expect to work.

How do I know if I’m financially ready to change careers?

A useful starting point is being able to answer three questions: Do you know what the transition will actually cost? Do you understand what you’re giving up by leaving your current job? And do you have a realistic plan for the period between your old income and your new one?

You don’t need absolute certainty about what will happen. Career transitions contain unknowns. But you should have enough accessible savings, insurance planning and flexibility that a delay or unexpected expense doesn’t immediately turn the career decision into a financial emergency.

Key Takeaways

• You don’t necessarily need to replace your entire salary. Figure out what your life will actually cost after the transition.
• Build a career-change runway, not just an emergency fund. The amount should reflect how long your particular transition could realistically take.
• Research the career before funding the career. People already doing the work can give you better information about the timeline and startup costs than your best-case assumptions.
• Know what you’re leaving behind. Salary is only part of your compensation. Check bonuses, equity, retirement benefits, insurance and other benefits before choosing your exit date.
• Plan for taxes and healthcare. These are two expenses that can change dramatically when you leave traditional employment.
• Remember what you’re investing in. A career change can create returns in time, flexibility, fulfillment and control as well as money.

Ready to Put Your Career Change on Paper?

You don’t have to decide today whether you’re quitting your job.

Start by figuring out what it would take.

Calculate your monthly number. Research healthcare. Find out what people in your new field actually experienced. Check your benefits and compensation. Estimate your runway. Start building the fund.

Maybe you discover you’re closer than you thought.

Maybe you realize you need another two years.

Either answer is more useful than assuming you’re stuck because you can’t afford to walk away tomorrow.

If you want help putting the numbers together, connect with Bill Promes or search the Purse Strings Approved Professional Directory for a vetted financial professional who can help you evaluate the transition as part of your larger financial life.

You spent years investing in the career you have now.

You’re allowed to make a financial plan for the person you want to become next.