Change job? It pays to check your finances before taking the plunge

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by TD Insurance

Personal Finance Family Finance

Before you quit your job, make sure you’re financially prepared to take the leap

Publication date:

Feb 15, 2022 • Feb 18, 2022 • Read 5 minutes • Join the conversation A first step is to find out what your monthly cash flow is and how much income you need to cover your expenses. A first step is to find out what your monthly cash flow is and how much income you need to cover your expenses. Photo by Getty Images/iStockphoto

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In an ongoing series, the Financial Post examines personal financial questions related to life’s major milestones, from marriage to retirement.

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Allan Small was about 25 years old when he made his first major career switch, from employee to being his own boss. “I went from not worrying about getting customers to starting from scratch. It was scary, but it was an opportunity to really launch my career.”

Now a senior investment advisor at iA Private Wealth Inc., he has approached every next career move in the same way as taking a position in a stock: he assesses the opportunity and the risk. “It’s easy to just think about all the expected positives, but what happens if it doesn’t work out? What pieces do you need to put in place to make sure you’re okay?”

Changing jobs or even careers is something that most people experience at some point in their working life. But the stress of the past two years and near-full employment in the country are driving more people to consider a switch, whether it’s a new job in their industry, a career switch in wholesale or starting their own. business.

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More than a third of Canadians are considering or hesitant to leave their jobs, according to a survey by HR services company LifeWorks Inc. Nearly three quarters would leave a job they are happy with for more money.

The findings are consistent with what Unconventional Wisdom financial planner and blogger Ed Rempel has seen with his own clients.

Almost three quarters would quit a job for more money that they are happy with. Almost three quarters would quit a job for more money that they are happy with. Photo by Getty Images/iStockphoto

“Employers pay more and people seize good opportunities to move up. Others have found that they enjoy working from home and are setting up home businesses,” he said.

“I also see people who want to leave or retire, especially teachers and health care workers, but they think they can’t because of salary, benefits and retirement.”

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Rempel’s advice to people considering a job change is to be financially prepared to take the plunge.

“This will help you build confidence to take a step and prevent fear from driving your decision,” he said.

Go back to basics

For example, calculate your monthly cash flow — the money you come in and the money you leave — and the income you need to cover your expenses.

“We see that many people move from paid jobs to contract positions, where income may be less certain,” Rempel says. “It’s important to know what you’re left with after tax and whether it’s enough.”

Knowing that your income may be lower, at least for a short while, he suggests adjusting your budget to reduce or postpone discretionary expenses such as restaurants or renovations. If you have credit card debt, clear it before you take the step.

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In addition, you need to create a transition plan and time your move.

“If you don’t have a plan, make one,” Rempel said. “If you have a plan, take a closer look and think about how a job change will affect that plan.”

For example, if you want to buy a house at the same time that you plan to leave a salaried job to become self-employed, arrange financing before you resign.

If you don’t have a plan, make one

Ed Rempel

“You need a two-year track record with regular income to qualify for a mortgage,” Rempel said.

Whether you’re moving from one paid job to another or going on your own, it’s important to know that you have enough money set aside in case things don’t go as planned.

“I call it a slush fund,” Small said. “It’s a source of money you can rely on, so you can buy groceries and pay for all your expenses.”

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This is why understanding cash flow is so important, especially given that a third of Canadians spend their entire paycheck in a pay period, and 26 percent say they couldn’t think of $2,000 to make an unexpected expense. to cover.

Rempel recommends setting aside enough money to cover costs for three to six months.

“Think about the biggest expense that could arise and how much you might need,” he said. “The money doesn’t have to be in a savings account that doesn’t pay interest. It could be investments that you have quick access to, a secured or unsecured line of credit that costs nothing, a TFSA (tax free savings account).”

Consider the tax implications

Every change in the situation has its own implications and multiple tax levels to consider: Does your tax bracket change when you change jobs? If so, this has implications for tax planning. If you are starting your own business, what kind of structure do you plan to set up? Are you going to be self-employed? Sole proprietorship with employees? Are you planning to record?

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“Educate yourself,” Rempel said. “Get the answers you need to make an informed decision.”

Also make sure that you calculate your existing/future fringe benefits. Is there a pension plan, a collective registered pension savings plan (RRSP)? What kind of health insurance, vacation time can you expect? How does it compare to what you already have?

“With more job openings than people to fill them, I think you can be more picky and expect more,” Small said.

On the other hand, benefits and pensions shouldn’t be the reason you stay in work, Rempel said.

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“People think a retirement plan is such a safe thing, but pensions invest much of their money in bonds, which now pay about 1.5 percent,” he said.

When you leave a job with a retirement plan, you have options: leave it where it is and when you retire; receive an annuity; transfer to your new employer’s pension plan (assuming they have one); or take it out and invest it.

Any move is also a good time to review your life insurance coverage to make sure it meets your needs.

With more vacancies than people to fill them, I think you can be more picky and expect more

Allan Klein

“As your income and lifestyle costs increase, you may need more income-replacement insurance,” Rempel said. “Make sure your beneficiaries are up to date.”

If you’re considering changing jobs, take stock of where you stand and make a plan. This will help you start from a financial position as you get used to your new situation.

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This post Change job? It pays to check your finances before taking the plunge

was original published at “https://financialpost.com/personal-finance/family-finance/changing-jobs-it-pays-to-check-your-finances-before-you-take-the-plunge”

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