5 Tips to Eliminate the Fear of a Financial Transition
You’ve made a decision to take a different direction in life, whether it’s to leave a corporate job for self-employment, go back to school to pursue a new career, leave the workforce to raise a family or perhaps even divorce your spouse. Money can make us feel abundant, scarce or anything in between, particularly when we are considering making a life change, which by itself may be scary and significantly impact us financially. I recommend the following steps to build confidence as you consider your life change and the impact it will have on your financial situation.
- Estimate your current income, savings and expenses. Using a simple spreadsheet or a budgeting tool such as HelloWallet, document your current monthly income streams. These can include income from a spouse depending upon your situation, side business, inheritances and government income such as Social Security. Similarly, document your monthly expenses including loan payments, utilities, groceries, clothing and services such as haircuts, cleaning, and pest extermination. Lastly, document any savings. I recommend focusing on liquid savings, but you can also include retirement savings, CDs and bonds.
- Estimate your new income and expenses assuming you’ve made the life change. Similar to the step above, estimate income and expenses based on the life change that you are looking to pursue. Do you anticipate a loss of income? Is it temporary (e.g. staying home for a period of time to care for young children) or somewhat permanent (e.g. divorcing a spouse)? How might your expenses change? Will you be able to reduce or eliminate expenses related to childcare? Are you saving money commuting to work because you will be working from home? Line by line, assess whether there is an increase, decrease or neutral impact to your budget.
- Look for opportunities to increase income or reduce expenses. Once you’ve captured your proposed scenario, perform a comparison of your income versus expenses and identify whether you have a gap to cover. Can you take a side job to provide additional income? Are there expenses that can be reduced? Consider items such as refinancing a mortgage or other debt to reduce monthly payments. Other areas to assess are things like insurance or cable or mobile phone bills. Having insurance re-quoted may save you money, particularly if you can bundle policies together. Cable and phone companies often have new, less expensive plans introduced over time. Can you cancel cable altogether and pursue cheaper options like Netflix or Hulu? If you find no areas for improvement on the expense side, congratulations! Although, I expect that you will likely find at least a few areas where you can make changes that benefit your bottom line.
- Consider how you wish to rely on any savings you may have. Depending on the amount of savings you have and the impact of the life change, you may decide to dip into savings initially whether it’s to cover an income gap for a period of time or to invest in your entrepreneurial venture. You can decide to use some or all of your savings, although I would recommend maintaining up to a six-month emergency fund to avoid having to rely on credit if you run into an unexpected situation. In addition, be aware of early withdrawal penalties should you choose to access retirement savings, CDs and bonds prior to maturity or eligibility dates.
- Address any limiting beliefs that you might have about money. We often carry limiting beliefs about money, such as “Money equals security,” or “A traditional job is more financially secure than self-employment.” We work hard to achieve our financial status and are afraid to lose it. Some of us are barely getting by and are concerned with fulfilling our basic needs. We give money a lot of our power.
Using a method called “The Work of Byron Katie,” when you are feeling fear related to money, identify the belief and ask yourself whether that belief is true. If the answer is “Yes” or “Maybe,” ask yourself, “Can you absolutely know that it’s true?” If the answer is still “Yes” or “Maybe,” ask yourself, “What is the worst-case scenario if it was true?” If the answer is “No,” ask, “How do you react (what happens) when you believe that thought?” and “Who would you be without the thought?” In my experience, this exercise reduces the power of the belief and helps to eliminate the fear around it.
I’ve personally used these tools and they help me feel more confident and in control of my situation, reducing the fear that can be tied to money. Also, only you can decide what approach is best for your financial transition. You’ll read all sorts of suggestions. I once read a recommendation to not quit your day job until you are making 3x your income at your side venture! That suggestion may have been appropriate for the person suggesting it, but maybe not for the rest of us.
Do you feel most comfortable working your day job while you build a business on the side? Do you prefer to build up a savings cushion that you can live off of as you fully commit yourself to your new venture? Only you know best what is right for you.
I hope that these tips are helpful as you pursue your financial transition, and I wish you much success!
Interested in Living Boldly? Join Catalyst Leslie Wier in the Finding Your Purpose in Life Tribe.