Whether it's a career shift, starting a venture, or planning retirement, it's essential to align your finances with your aspirations.
Have you noticed someone undergoing a midlife crisis? Often, we associate this with drastic decisions like quitting a long-held job or relocating to a different country. Nowadays, many individuals of all ages are experiencing this shift. The pandemic prompted everyone to pause, reassess their goals, and many responded by changing jobs or retiring during the Great Resignation. Simultaneously, applications for new businesses surged, fueling a collective desire to pursue a more fulfilling life.
If you've contemplated making a significant change recently but felt uncertain about where to begin, you're in luck. The first step is simple: examine your budget closely. Analyzing your finances empowers you to take control, explains Jill Schlesinger, a business analyst and podcast host. "When you address the financial aspects, it becomes easier to tackle the emotional side of things."
In her book “The Great Money Reset”, Schlesinger offers guidance for navigating major life transitions with minimal financial strain. She shared her top four recommendations below.
EVALUATE YOUR FINANCIAL STATUS
Before making any decisions that could impact your income, it’s wise to know your earnings, expenses, and savings. Start by assessing the total value of your assets, which should encompass your bank accounts, retirement accounts, investments, your home, and other significant properties. If you’re employed full-time, include your benefits in your calculations, as they hold substantial value, says Schlesinger. This includes health insurance, life and disability coverage, employer contributions to your 401(k), and any health savings accounts.
Next, consider your regular expenses and debts, such as credit card balances, car loans, student loans, and your mortgage. Also factor in any financial commitments you currently have or anticipate in the future, like funding your children's education or your parents' healthcare costs.
By the end of this process, you should have a clearer understanding of your capacity for a significant leap in lifestyle and what adjustments may be necessary. “Once you answer these questions, you can start to explore various scenarios,” Schlesinger advises. “What’s the best case, the worst case, and the middle ground? This helps create a framework for your decisions.”
REASSESS YOUR MONEY BELIEFS
Your financial review may reveal opportunities you hadn't considered. Perhaps you've always thought you needed to remain in a high-pressure job until retirement. However, reviewing your finances could lead you to realize that part-time work now, delaying full retirement, may be more appealing. Or you might have believed owning a home was essential for building wealth, even if it meant incurring additional debt. One couple Schlesinger interviewed, Pam and Tom, discovered that selling their home to rent was the best financial decision for them.
“They held a substantial mortgage due to refinancing to assist their child with student loans,” Schlesinger explains. “This resulted in significant debt, forcing Pam to work extensive overtime to manage payments and contribute to retirement.” However, after getting their home appraised during the housing market surge in 2020, they realized they had more equity than anticipated. Selling allowed them to eliminate their debt, reduce Pam’s overtime, and potentially extend their careers due to less stress.
“It can be daunting, especially if you’ve owned property for a long time,” Schlesinger acknowledges. “However, imagine the relief of being free from that debt and the flexibility that comes with renting.”
REDUCE UNNECESSARY SPENDING
Another common assumption is that your expenses leave no room for flexibility. This feeling is prevalent, particularly in times of inflation and rising credit card debt. However, reflecting on your purchases and the reasons behind them might highlight areas where you can cut back on non-essential spending.
Schlesinger suggests asking yourself several questions: What do you genuinely need? What do you believe you need? Do certain purchases make you feel guilty or anxious? Do you buy impulsively, and if so, when and why does that happen? The answers could lead to changes in your lifestyle beyond just financial adjustments. For instance, if dining out with friends feels necessary, consider hosting casual dinners at home instead. If you’re buying excessive work attire to feel respected in the workplace, explore alternative, budget-friendly ways to boost your confidence.
“Taking a moment to assess our spending without judgment can reveal its true impact on our lives,” Schlesinger notes.
ADVOCATE FOR BETTER COMPENSATION OR BENEFITS
While managing expenses is critical, it won’t make you rich on its own. A vital step in securing the funds necessary for your significant life transition involves negotiating for improved benefits at work. Being clear about your needs is crucial. Are you seeking just a salary increase, or do you prefer additional paid time off or remote work options? (Remember, time equates to money.) Your supervisor might be more receptive to the latter, especially if the company is facing challenges.
“As a former boss, I understand that when someone approaches me during tough times for a raise, it’s not the best moment, even if they’re exceptional,” Schlesinger reflects.
She recommends preparing your requests in advance, considering their feasibility based on the current situation, how your manager may respond, and strategies for negotiating if you receive a negative answer. If you feel apprehensive, practice the conversation with a friend.
