Saving for a rainy day might just save your career

Short version:

If you do not have a rainy day fund you risk losing control over your own career.

Long version:

I recently met with a successful professional faced with a tough decision in the midst of a job search. On the one hand, she could join a large respected company in her field in what was effectively a lateral move. Alternatively, she could join a start-up which would involve a great deal more risk but the potential for a much greater reward.

In speaking with her it was clear that she was more interested in the latter. She was passionate about the opportunity to build something and to gain all kinds of new business exposure.

Unfortunately, due to financial pressures she felt she had to take the first option. Her biggest regret was not the decision itself, but facing the reality that this could have been avoided if she had been more thoughtful and prepared earlier in her career.

This is scenario I see often. On the whole I like to encourage most people to be ambitious and often even take risks with their careers. However, while it is easy for me to challenge people in a conversation, the reality is that career decisions are not made in a vacuum. Many people have responsibilities that take precedence over their careers, and as a result they are forced to “settle for less” when making decisions. This leads to people accepting the wrong jobs, working in junior roles or for lower salaries, and passing up great opportunities because of the risks involved. This in turn affects how employers view you going forward and starts an ugly cycle.

Having now seen this happen many times, three points stick out for me:

1. People are always surprised by being forced to make these choices, but they really shouldn’t be. The timing may be a surprise; such as if you are unexpectedly laid off, but we should all fully expect some amount of uncertainty over the course of a long career. The world is full of terrible bosses, unexpected layoffs and exciting but financially risky opportunities. We should never be surprised by having to face these issues even if we do not know exactly when.
2. The freedom to quit is a wonderful thing. There is nothing more frustrating than feeling trapped in a job and seeing no way out. Conversely, there is nothing more empowering than feeling that you are the master of your own destiny. When you put yourself in a position where you have the option to leave at any time, you will be happier and more objective in your decision-making.
3. Only foresight and discipline can protect you. If you understand that it is very likely that you will face unexpected surprises that might cause financial pressures, and you are an engaged and ambitious professional that wants to be the master of your own destiny, your only option is to be financially prepared.

Actionable Advice:

I strongly recommend that people constantly set aside money for career interruptions, rainy days and/or unforeseen opportunities.

The amount that you need to set aside is different for everyone, and ultimately it is a matter of doing your own math, but here are a few guidelines to help:

1. How quickly do you think you could find a suitable job if you suddenly need to? The longer it would take, the more you need to be ready. People in senior roles often fall into this trap, leaving themselves vulnerable and not taking into account that there are fewer senior roles and the job searches take longer. However, people in positions of high demand may only need a couple of months salary in order to give them sufficient time to fully assess the options make the right choice (and perhaps work in some vacation)
2. Are you considering a career change in the future? One of the main reasons people refrain from such changes is because they fear having to take a step back. This is unfortunate because people may have more long term earning potential in areas where they are a better fit and more likely to truly excel. Take the time to do the math and understand (after taxes) what the impact would be and how much you might need to offset the difference. This might just make such a change feel much more attainable.
3. Do you have plans of starting your own business in the future? This one really hits home for me. In 2009 when I decided to finally put my money where my mouth is and start my own business (rather than just telling everyone else to have courage) I made sure I had enough set aside to both incur expenses and go for a certain time period without any income. This was only possible because I had known much earlier that this was my goal. I honestly believe that many potentially great businesses never get started simply because talented people fail to do this.

We live in a time where people change employers more often than ever before, where the opportunity to change careers at midstream has never been greater, and where new technologies make entrepreneurship a wonderfully viable option.

It breaks my heart to see successful people with nice homes, fancy cars and no safety net find themselves sacrificing their own careers. There will never be a good time to take a hit in guaranteed income but if you can afford nice things, you can afford to do this. If you don’t put yourself in a position to give yourself options, you may find yourself suddenly without any.

By: Mark Nelson from Career Digressions

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