Updated: Apr 01, 2024

How to Plan Your Finances for Your Dream Career

Thinking of making the switch to the career of your dreams? Here's how to get your finances ready - especially if that new career entails working for yourself.
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Image Credit | https://unsplash.com/photos/aOC7TSLb1o8

I never set out to quit my day job as a small business accountant to become my own boss. But as I was sitting at my old desk talking to my then-boss, I realized I couldn’t keep putting my life on the back burner. So I put in my notice and walked out on the traditional employment world for the last time.

However, it wasn’t a super smooth transition. In fact, took nearly five months from the time I told my boss I was leaving to when I walked out the door. In that time I did a lot of planning, saving, and prepping before making the switch.

Are you looking to make a similar change in your life? Here’s how to plan your finances for your dream career.

Pay Off Consumer Debt

Making the switch from working a day job to becoming self-employed was two years in the making. I didn’t know it at the time, but I started my journey to freelancing full-time when I was still $14,000 in debt. As my debt grew, I was feeling constrained by the limitations of not being able to spend my money how I wanted.

About one-third of my monthly paycheck went towards debt, not leaving much for me to live on. So I made a decision to pay down all my consumer debt as quickly as possible. This debt load consisted of a car loan and credit card debt. It took 14 months to pay off $14,000, and it was not without a lot of struggle. But in the end, I’m glad I did it.

Consumer debt is a risky type of debt, with credit cards being a prime example. These come with high interest rates and aren’t backed by any assets to help offset the debt balance. In the event you can’t pay off the balance, you could be in quite a financial bind.

Before making a switch to your dream career, make it a priority to pay off as much of your consumer debt as possible. This will offer a better chance of success on your career path, as you’ll have less high-interest debt weighing you down.

Calculate How Much You Need to Save

After paying off all my debt, I was able to move on to my next goal, which was to determine exactly how much I needed to save up. I logged into my bank online and requested to open up a new savings account. I named this account my “leap fund.” My aim was to save at least $10,000 before quitting my job to start my freelance writing business.

I came up with this number based on my monthly budget. If I were to be completely out of work for 3-4 months, I’d be able to cover all my essentials bills. Most experts say you need at least 3-6 month’s worth of expenses in the bank, so I knew this would work for me. And $10,000 is a nice round number.

As you’re planning for your dream career, sit down and list all your monthly expenses. Include everything from your needs. (Clothing, food, and shelter.) Then your savings goals. (Retirement and investments.) Find the bare minimum amount you can live on if you aren’t receiving a paycheck. Then multiply this number by 3-6 months. This will help you calculate exactly how much you need to save to make a successful career transition.

Separate Business and Personal Finances

Finances play a huge part in planning for your dream career. For me, this meant setting up a separate bank account for my freelance client work and using a personal checking account to pay household bills. I didn’t want my CPA (or any other tax professional) to have to sift through both my personal and business transactions every month.

Also, many freelance clients request direct deposit forms as a form of payment. This requires writing down your bank’s routing and account number, and I didn't want them to have access to my personal account information. Before moving on to the next part of your career planning, evaluate whether you need separate bank accounts to help keep your finances organized.

Re-adjust Your Financial Goals for Real Life

As the months went on and my personal situation changed a bit (I got engaged!), my financial goals changed too. Instead of being able to save $10,000 for my leap fund, I estimated I’d only be able to save about $7,000. Why? I was planning to move to Denver, Colorado, for the summer with my new fiance.

It would be nice if all we had to do was set financial goals and start working towards them. But life usually has other plans, and we have to re-adjust. The reality of my situation was that I could continue working at my full-time job (something I had already determined was non-negotiable), or make the leap with less money saved up than I originally planned.

I chose the latter option and became self-employed with only $7,000 in the bank. In other words, I had enough funds to cover two months worth of expenses. This was not the right choice financially speaking. But it was the right choice for me personally. It did, however, set me back quite a few months with my career. In the end, I wish I’d been able to tough it out longer and save some more money.

Double your savings goal

The biggest lesson I’ve learned from making multiple career transitions over the past five years is that you should take your initial savings goal and double it. Even with my accounting background, I thought $7,000 would be a good enough cushion (not ideal, but good enough) to jump- start my freelance career. I was wrong.

I went through the $7,000 savings within the first six months. Then I ended putting another $3,500 on my business credit card. This was all to keep my freelance business going. I look back on things now and realize that my initial $10,000 “quitting fund” goal was pretty spot on. But I could have used a lot more money as backup funds to give myself more breathing room. The more money you save up, the more risks you can take, the more time you can spend with family, and the less stressed you’ll be.

Once you’ve calculated how much you need to save to make the switch to your dream career, I highly suggest doubling that amount. Or, at the very least, adding a few extra thousand dollars to help ease the transition even more. You’ll regret if you don’t save enough (as I did), but you won’t regret saving a bit extra.

Secure Long-Term Contracts and Projects

If you find that you’re unable to double your savings (due to time constraints, for example) one way to alleviate financial pressure is to secure long-term contracts. In other words, book yourself out months in advance with freelance work, a part-time job, or whatever else you can do to bring in more money.

This is another big lesson I’ve learned throughout multiple career transitions. When you no longer work for an employer, you’re responsible for everything. You have to pay self-employment taxes. You have to save for retirement. You have to find your own health insurance. Those are a lot of added expenses to take on in those first few months.

And on top of these added expenses, you no longer have a steady paycheck coming in. This situation is a perfect storm for putting you into debt. Plus, it could ultimately force you to go back to the job you had before making the switch. Do yourself a favor and secure a few long-term contracts (or other part-time projects) to help cover this added financial burden.

Be Prepared to Hustle

Planning for your dream career is often a lot more fun than the reality of doing whatever it takes to make that transition successful. And it doesn't help that there are also a lot of misconceptions about quitting your job to work for yourself. (Endless images of freelancers working from the beach or sitting poolside while on a laptop doesn't help. That’s not real life.)

The real truth of making a big career change is that you have to be prepared to hustle, hustle, hustle. If you truly want to make your dream career a reality, you have to sacrifice your nights, weekends, and even your sleep schedule to help get it off the ground. You’ll have to give up buying things at Target and visiting the local Starbucks in order to pay off consumer debt or save up more money in your “leap fund.”

It’s not all bad, though. If you truly enjoy the hustle and the new career you’ve chosen, it will feel less like a sacrifice and more like an investment in your future career path. After five years of hustling to see my dream career realized, I can say it’s all been worth it. I get to manage my time however I want and take off work at a moment’s notice. But it’s not been without financial struggles and hardships.

As you begin planning your finances for a career change, use the steps I’ve outlined above as a guideline to help make your transition as smooth and successful as possible.