Mid-career change? 5 money tips for you

Before you take the leap, get your financial house in order

As the emerging corporate order is throwing up a host of job and business opportunities, mid-career change is getting more attractive. Gone are the days when your dream was to join an MNC company, move up the ladder and spend the rest of your life with the same company. Today, many senior and mid-level executives in their late thirties and mid-forties are making a mid-career change. These mid-career changes are not just lateral job changes. More often than not, it is either a bet on an emerging trend in the market or it is the beginning of an entrepreneurial journey.

When Ganesh Chandrasekaran decided to quit his cushy job at a multinational IT company, it was not just about how he would adjust to his new role which was semi-entrepreneurial. He had to answer the more immediate question of managing his finances in a steady and secure manner. After all, he had aged parents to look after.

His elder son was already doing his MS in the US and his daughter was planning a career in architecture.

Additionally, his home mortgage was still in progress and would continue to drain Rs 50,000 per month in the years to come.

In this situation, for Ganesh, the primary focus should be to put his finances in order. As a professional, he surely has his finger on the pulse of the market. What he cannot afford to miss out is planning his finances in an astute yet conservative manner.

Here are the 5 points he needs to focus on:

Focus 1: Prioritise his liabilities first

For a high flying professional like Ganesh an EMI of Rs 50,000 per month may not look too steep. But remember, when you are taking up a semi-entrepreneurial role, the last thing you want is assured liabilities.

He would do well to pay off his entire mortgage loan as that would be a good way to utilise his savings.

Additionally, once the home mortgage is paid off, it becomes an asset that can be leveraged at a later date. He can always borrow against his house in case he requires any funds for an eventuality in future.

Focus 2: Create a monthly budget and prioritise

Most of you have learnt that economics is about far ends and scarce means. It is now time for Ganesh to start prioritising expenses. He needs to analyse his monthly spending patterns and try to reduce the wastage and flab in his monthly budget.

For example, ensuring nutrition for the family is a priority but splurging money on eating out is not a priority. He must put off any kind of capital expenditure for at least 2-3 years till his finances stabilise.

Expenses for the education of his children cannot be compromised and they must be given priority. Similarly, any outlay that is in sync with his long term financial plan must not be tampered with.

Focus 3: Take adequate insurance for exigencies

There are some very critical issues you need to understand in the event of a mid-career change.

For example, Ganesh was having hefty health coverage for himself, his family and his aged parents from his existing company. When he leaves the company, he will lose out on these benefits. If he goes for a private insurance cover then his parents will most likely not be eligible and he will have to pay a higher premium for the cover for himself and his wife.

Similarly, a term cover on his life must at least cover chunk of their monthly expenses. Here is how you calculate that.

Assume that Ganesh requires Rs 200,000 for his regular monthly expenses and outlays. That means assuming that this amount can earn around 8 per cent per annum safely, he will need to take a term cover of at least Rs 3 crore.

That corpus formed in the times of exigency will ensure an annual interest inflow of Rs 24,00,000, which will be sufficient to cover his family’s routine costs in case of Ganesh’s death.

Focus 4: Invest liberally in educating and upgrading his skills

This is a very broad point, but extremely important when you are looking at a mid-career change.

If you are looking to change your field, then invest in reading up, joining quality courses, attending executive development programs etc. These costs may appear steep but they will be critical inputs in your career decisions and hence must be looked upon as investments.

Try to invest in networking better. The social media space offers platforms like Linked In and Twitter where you can indulge in some serious networking among your peer groups. Do invest sufficient time in building networks as they will stand you in good stead in your career shift.

Step 5: At a financial planning level, keep your options open

It is good to be passionate about a career change, but it is also essential to be pragmatic in this entire exercise. As we said earlier, it will be your personal financial planning that will be the biggest challenge.

It is therefore essential to keep your options open.

If the new venture is draining your finances badly, it makes sense to go back to your old venture. Keep those lines and networks open and willing to welcome you back. Also leverage your past colleagues and bosses to work out part-time projects for you. After all, they know you have a comfort level with you. Hence it makes sense to start your business relationship with them.

More importantly, have a surrender value for your business plan. Be clear that when your net-worth erodes or your savings are endangered beyond a certain point, you will be willing to give up and revert to your old plan. Many successful businessmen have scoffed at the idea of having a Plan-B. You need to be practical!

Having a Plan-B in place will give you and your family that additional room for comfort.

Ganesh must, therefore, take a very pragmatic and systematic approach to his mid-career change. The highlights of his challenges are as under:

• His liabilities should not become a drag on his career shifting plans
• His family's financial goals must not depend too much on his presence
• He needs to snip wasteful allocations early and focus on the must-spends
• There is not better investment than education and that is especially true of a mid-life career change
• He cannot get seriously married to his career switch option and needs to keep Plan-B live

A mid-career change, like in the case Ganesh, brings with it uncertainty, tumult and financial turmoil. A little bit of planning and preparation can go a long way.

Photograph: Robert Couse-Baker/Creative Commons

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.