How to get clear in preparation for change
Are you worried about your job security? And so wondering what your financial situation would be should you lose your job?
Or maybe you are thinking of changing careers or becoming an entrepreneur and are not sure if you can afford to be without an income for a period of time?
Here are some simple steps you can take to provide clarity over your financial situation so you can better focus on figuring out your next career move.
The ongoing presence of COVID 19 seems to have driven more people into ‘mid-life crisis’ mode long before the traditional age of the mid life crisis. Many are worried about their job security, but many others are thinking about what they really want to do with their lives, reassessing their values and how they spend their time.
In hindsight, maybe I had my mid-life crisis in 2019 when I left my 19 year career in corporate finance behind to set out on my own as a Finance Coach. It was before COVID but also before the traditional age of the midlife crisis I point out!
So what did I do and what advice can I give to others feeling insecure about their careers or feeling maybe it’s time for a change? I’m not a life coach, nor a career guidance coach. However, I am a finance coach and what I can help with is finding out if you can afford to walk away from the job that doesn’t fulfill you or help you understand what your financial situation really is should you find yourself on the wrong side of the COVID cuts.
Even if you are lucky enough to have the perfect job for you in an industry or position that is super secure, this is also for you as I believe it to be the first exercise we should all do when first taking control of our financial situation.
1) What is your financial net worth?
Do you know what your financial net worth is? Are you in a positive net worth position or negative net worth position?
Do you know the difference?
In short, positive net worth is when you have assets with resale values higher than the total debt you owe. The higher the net asset number, the more you have achieved with your finances and the more secure you are financially.
It’s crucial information to know as if you are in a net liability position, that is you owe more than you have in resellable assets, you have the awareness and can start consciously working towards improving your financial situation.
Or if you are in a positive net asset position, then you can feel secure that should the worst happen with your job, you have assets to support you for a period of time.
This is a calculation we should run regularly as it is important information to know, especially if you have debt. It is also a motivating number to keep an eye on. Much like when we want to lose weight, seeing that number on the scales go down is gratifying and motivating to keep going with our positive eating habits and exercising. Seeing your net worth number grow every month is also super motivating and will help keep you focused on your financial goals.
2) Do you know your monthly cost of living?
Do you know how much it costs, in total to live your current lifestyle? If not, go through your previous three months expenditure, in detail, don’t estimate, and take note! Take that number and multiply it by the number of months you think it might take to replace your income should you lose it.
My advice would be to have at least 6 months of total living expenses set aside in an accessible savings account. This is your emergency fund/rainy day fund/sanity fund. Call it what you like but it’s the cash that will provide financial stability until you find a replacement income source.
I personally have 9 months set aside, as I have three school going children, a mortgage and tend towards the low risk side of the pendulum so I like to have plenty available to me should my income completely dry up. With 9 months of living expenses available to me, I have time to take stock and reassess should I find myself without an income. I can maybe wait to find the right job, not just any job because I am not desperately and urgently in need of an income. It may even give me time to take a few months off to think about what I really want to do if I have doubts about my current career. It gives me time, choices, stability and freedom. Nothing bad about any of that!
Completing this exercise is so important, regardless of your job stability or what you perceive to be your financial situation. Experience tells me what we think we have, or don’t have, is rarely reality and without looking at the real life numbers, not just estimates, we cannot know for sure what our financial situation is should the worst happen. And if you are thinking of changing your career (or leaving a lucrative, safe and successful career for the world of entrepreneurship like I did) then your first step should be to complete these exercises.
Just think of the sense of security you will gain by knowing what you financially have to fall back on. Who doesn’t love a little security during these turbulent times.
And as always, if you would like to know more about how to do these calculations, or how to build on our net worth, or convert net liability number into a net asset number, I am here to help.
Book in for your free 20 minute chat or email me on carol@consciousfinancecoaching.com and let’s get started!