Career change is usually a long process. The more ways in which your new career is different from your current one, the longer it will take. There are two basic ways to go about it. The first one is the ideal and safer path, where there is a considerable time during which the old and new careers overlap. It would involve what I call an immersion phase, during which you prepare yourself optimally for your new career before you let go of the old one.
The second path is when you try to change your career drastically, abruptly ending the old one. This path is extremely risky but at the same time highly enticing, as many risky things are. Take for example an advertising manager who just doesn’t want to create advertising campaigns for large companies anymore. She is fed up and vows to complete just one more last project for the company. She always wanted to be a musician and make a living selling records, so she decides to quit her job the next week to pursue music full time. During her 10 years of employment at the Advertising company, she has saved up a lot of money and invested in a property. She has no big concerns about her finances. After all, she has huge savings which she can use to pay for her living costs, mortgage, and all other expenses related to growing her career as a musician, for the next 2 years. It seems like she’s got a plan, financially speaking.
While you may think that having a large backup fund is an advantage when transitioning to a new career, it also has its drawbacks. Here are the pros and cons of having large savings when you’re changing your career abruptly:
Having funds that can cover your living expenses for a long time can allow you to focus fully on developing your new career. You don’t necessarily have to work a part-time job or work freelance in an area unrelated to your career plans, in order to stay afloat. Nothing will keep you from focusing on your new career, and you can invest your entire energy into building your future.
Money buys you time. The larger your savings are, the more time you can spend to get yourself up and running in your new career. You don’t feel rushed, you can take the time you need, and you don’t waste mental space worrying about not making ends meet. If your plan was to make headway within 12 months, but things turned out to take longer – longer time to get the new job in the new industry, to get investors for your business, or to get certified in something – you don’t need to abort your plan and go back to your old job. You can afford to take another 6 months to reach your milestone.
3. Extra funds to invest in your new career
Developing something new always costs more than planned. May it be investing in a new business, or getting trained in a new skill. Oftentimes you only find out mid-way that you need 20% more money to be able to buy the kind of equipment you need. Or you decide that you want to enroll for a post-graduate program that costs a third more than the one you initially planned to sign up for. Your savings can act as a contingency fund. You have easy and immediate access to it as you can easily withdraw the funds and invest it into your new career. You don’t waste time looking for a new investor or lender.
All the pros mentioned above have a downside. Here are the cons of having access to a huge account:
1. Fast outflow of money
Although initially, your emergency fund may seem like a massive amount of money that looks like it could last forever, you will soon notice that it will be spent in no time. We often underestimate the actual amount of money we spend, unless we regularly keep track of all our expenses. Let’s say that you estimate your total monthly expenses to be $5,500. So a fund of $132,000 would cover 24 months. But is it actually $5,500? Have you counted the additional expenses for your property if you have one, money you spend on entertainment, traveling, and gadgets? If you include every single expense, you might quickly arrive at a higher figure, let’s say $6,500 per month. So instead of $132,000, you actually need $156,000. In addition to that, you might need $5,000 more to buy all the equipment you need for your new business. Miscalculations quickly add up, and before you know it, your savings are depleted after 14 months, instead of 24 months. One of the main problems is that we no longer earn the same steady monthly income as before. However, we got so accustomed to that default living standard we had, so that even after leaving our previous job, it is difficult to dial down the expenses. Let’s say you have saved even more, and you have access to double the amount. If you don’t belong to those people who are highly disciplined in their spending habits, you might be tempted to spend even more just because you can. And even though it may feel assuring to be self-sufficient, it doesn’t mean that you’ll be happy to see that you’re only left with 30% of your initial savings, at the end of 2 years.
2. Less pressure
Have you ever had the experience of being more efficient when you have less time? Having lots of time, when spent wisely, can be an advantage. Instead of rushing into decisions and stressing yourself out, you have the luxury of making calculated decisions. You can take all the time you need for research and deliberation. However, where there is too much time, there is a risk of becoming inefficient. Where there is no external time pressure or any external pressure, you have to rely on yourself to kick you in the butt. But why do you need to rush at all to make large and quick strides in your journey towards your new career and a new source of income, when all you have to do is withdraw money from your checking account to pay for your living costs? If you have huge savings backing you, then making money fast from your new job or business cannot always be a strong motivator. In this case, you need something else, something much stronger, that can motivate you to make progress faster.
3. Higher inefficiency
When people are tight on money, they either overspend by maxing out all of their credit cards, or they become more resourceful. On the contrary, when there are too many resources at hand, people tend to overspend. A simple example: Give someone $100 to make a sponge cake, and he or she can easily spend all of it on fancy cake pans, the most expensive butter, etc. Give the same person $10 instead, and they will still be able to make a sponge cake. And it will not necessarily taste worse than the $100 cake. The idea is that if there is more money to be spent, more money will be spent. The same goes for time. So let’s say you have access to $200k of saving. You are going to open a restaurant but told yourself that you would not use your own funds, but have investors to fund the business instead. But this restaurant is your dream, and you are highly passionate about every detail. When it comes to adding an extra feature or upgrade certain parts of the restaurant, how likely is it that you’ll find yourself chipping into it? You might just be tempted to spend some more money out of your own pocket here and there, to perfect everything.
So looking at the cons, what does it mean for the career change process? Does it mean that it’s better to change careers without having a lot of savings? In the hopes that it will be a motivation booster and procrastination killer? No. The point of looking at these pros and cons is to realize that money is not a solution to fast career change. Career change is a tedious process, that requires a lot of pre-work. Of course, you can choose to go the risky and adventurous way, and your 6-digit backup fund will make the process more enjoyable. But expecting that it will solve or speed up the process will likely lead to disappointment.