Planning for career change and big drop in income

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HoustonNative
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Planning for career change and big drop in income

Post by HoustonNative » Sun Apr 05, 2015 8:15 am

I'm a lawyer in private practice making about $140,000/year. My saving and investment rates have been good, but not fantastic, for my level of income.

I feel like I have come to the end of the line -- spiritually, emotionally, whatever -- with private practice, and I want to move into some form of public service. From what I can tell, I need to plan on resulting in an income of about $60,000 / year, at least to start. Luckily my wife has a very stable job making about $70,000, and we can plan on that being there basically in perpetuity. Unfortunately, though, we are currently spending about $110,000 / year. Of course, every expense (including $2,000 / month for daycare for two kids) has come to seem essential.

On the one hand, it seems ridiculous that we couldn't live on a combined income of $110,000 (before taxes, etc.) -- millions of people do it every day. On the other hand, I think we are a classic case of lifestyle creep, and it is notoriously hard to reverse.

Does anybody have any experience with this kind of career change? Any thoughts on how to re-structure my lifestyle now so that we have the money issues in check before the change actually happens? Any other advice?

fh2000
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Re: Planning for career change and big drop in income

Post by fh2000 » Sun Apr 05, 2015 9:40 am

If you switch and your combined income reduced to $130K, you will not be able to afford your current spending pattern ($110k). You should find a way to reduce that first before you switch.

letsgobobby
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Re: Planning for career change and big drop in income

Post by letsgobobby » Sun Apr 05, 2015 9:48 am

Write down every expense over the last 2 months and track every penny of spending over the next couple of months. Find out where the money is going, then you can decide what to change.

texasdiver
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Re: Planning for career change and big drop in income

Post by texasdiver » Sun Apr 05, 2015 10:13 am

My wife and I are doing the same thing basically.

We are looking at how to squeeze our oldest daughter's college expenses into our budget and looking at the possibility of career change and relocation that could result in reduced income potentially.

To date we have pretty much been cruising along on auto pilot, doing all the proper retirement savings and such but haven't really been religious about budgets or frugality. With some looming life changes now we are starting.

We have found that an extremely useful tool for this sort of exercise is the You Need a Budget software. http://www.youneedabudget.com There are a lot of ways that you can do budgeting...on paper, in Excel, and so forth. But this is a pretty sophisticated and powerful way to do it. They have a pretty bogleheadish sort of community in their user groups who will step up and help. And lots of support.

dolphinsaremammals
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Re: Planning for career change and big drop in income

Post by dolphinsaremammals » Sun Apr 05, 2015 10:18 am

I would suggest that you need to live on the reduced level of spending for 4-6 months before committing to the career change. That will give you time to get adjusted, figure out how to do it, and get used to dealing with unexpected expenses.

I would also look at your spending at date in terms of large ticket items as well as normal ongoing spending - allow for roof replacement, car maintenance, taxes of all sorts, etc.

I wonder what you're spending on housing. Perhaps you need to downsize your house to something comfortable but less money draining. If you have lifestyle creep, it is probably showing up in the house.

Good luck with your career change. I hope you find something you really like doing.

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jeffyscott
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Re: Planning for career change and big drop in income

Post by jeffyscott » Sun Apr 05, 2015 10:29 am

HoustonNative wrote:Does anybody have any experience with this kind of career change? Any thoughts on how to re-structure my lifestyle now so that we have the money issues in check before the change actually happens? Any other advice?
Well, yes in that my spouse quit her job about a year ago, at age 50, and is not planning to work again. This reduced our gross family income by about 40%. Our income had been about 2/3 of yours, but kids are grown and on their own and house was paid off 10 years ago.

About 30% of her income was going to taxes and about 35% to her retirement savings account, both of those "expenses" ended when she quit. The rest of her income (and more) was just piling up in other savings.

We never had that much lifestyle creep, so we were able to make the decision that she could stop working, knowing that my income alone was still more than enough to continue to live in the style to which we are accustomed and knowing we'd already saved more than enough for retirement. Our only change is that we are now saving less, though still about 1/3 of income. In her last 3 years we'd averaged a little over 50% savings.

In your situation, I'd agree that you should adopt the new lower spending lifestyle first, then decide if that new lifestyle is worth the trade off. Hard to know what you can change, without knowing were the money goes...other than the one thing you did mention $24,000 for day care is certainly a lot, maybe that'll go down when they are in school or maybe you will work fewer hours if you change jobs.
On the one hand, it seems ridiculous that we couldn't live on a combined income of $110,000 (before taxes, etc.) -- millions of people do it every day.
I agree with that :P and since median family income is about 1/2 that, many millions live on far, far less.
Time is your friend; impulse is your enemy. - John C. Bogle

staythecourse
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Re: Planning for career change and big drop in income

Post by staythecourse » Sun Apr 05, 2015 10:49 am

I agree that you SHOULD be able to live off of much less then you spend (as you noted millions do each year), but that doesn't mean you have to.

You have to decide what expenses you NEED vs. WANT. For example: If both your wife and you work you NEED childcare. Now the question is do you NEED it at that the current level of cost or do you WANT it because you like the childcare you are receiving already? You have to go through that mental questioning through all your major expenses to get your answers of how much you NEED to spend vs. WANT to spend.

That will give your answer of what you can do with work. If you can ratchet down the expenses then you can seriously consider changing to less income position, but if not then NOPE. In life you can't get everything. If you want to spend more then you have to make more. It really is as simple as that. If you spend less then you have the more options not only now in your working life, but in retirement as you will need less money to fund close to your current lifestyle if you were to cut down on expenses.

One other aspect is daycare is only for a finite time so maybe when those expenses are up you can make the move you want?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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blueblock
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Re: Planning for career change and big drop in income

Post by blueblock » Mon Apr 06, 2015 7:22 am

I agree with those who advise that you should get a better understanding of your "lifestyle creep". Mint.com did this for me. It's free and it "learns as you go," so that after the initial set up and a few months of categorizing each expense, it takes only a few minutes a month to log in and categorize any new checking or credit card expenses. I'm pretty frugal and didn't need to make any changes, but after a year it was good to be able with confidence to put a dollar amount to how much I need to live annually. Indeed, once I saw how low my spending actually is, it gave me the confidence to pull the plug and retire.

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gasdoc
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Re: Planning for career change and big drop in income

Post by gasdoc » Mon Apr 06, 2015 8:03 am

Dave Ramsey has a new budgeting tool, I think called "Everydollar." I've only heard about it.

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cheese_breath
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Re: Planning for career change and big drop in income

Post by cheese_breath » Mon Apr 06, 2015 9:18 am

letsgobobby wrote:Write down every expense over the last 2 months and track every penny of spending over the next couple of months. Find out where the money is going, then you can decide what to change.
And if you want some (sometimes brutal but always well intentioned) feedback you can post it here for our review and comments. My initial guess without any data to support it is you're probably spending significantly more on housing and cars than is reasonable for your planned reduced income.
The surest way to know the future is when it becomes the past.

playtothebeat
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Re: Planning for career change and big drop in income

Post by playtothebeat » Mon Apr 06, 2015 12:32 pm

One thing to consider is how your benefits may change if you go from private practice to public service. For instance, a friend of mine was a partner at a law firm, and was paying around $1800/month for medical/dental/vision for a family of 5 (no subsidies as an "owner"). He recently left to go in-house which included a significant paycut (around 30%), but his benefits are something like $400/month now, so that's a significant saving that he didn't necessarily account for when doing the "before" and "after" calculation.

Slowmaha
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Re: Planning for career change and big drop in income

Post by Slowmaha » Mon Apr 06, 2015 4:18 pm

I'm about to do the same (hopefully, I have a job interview Wednesday).. Cut my salary by 13% but I go from a 40 mile round-tripper to a 2 mile bike ride or walk... Hopefully doing something halfway worthwhile. 13% may not sound like much but we already don't make that much (especially by boglehead standards!) and my wife stays at home... I think we can make it work, and I plan to go down to 1 car.

Life's too short, do what you feel is a right fit for your life. Good luck!

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englishgirl
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Re: Planning for career change and big drop in income

Post by englishgirl » Mon Apr 06, 2015 5:08 pm

I've dropped my income several times over the past few years trying to do something similar (although I am changing careers). Each time I thought I couldn't possibly reduce expenses, and you know what, I did it. Now I can't even remember what on earth I used to spend money on.

I suggest signing up for mint.com immediately. And if you haven't already, read some posts on Mr. Money Mustache. Start looking at where your money is actually going. And then start cutting the fat. Some of it is going to have to be a plan on paper until a good time comes along to make a change - like I waited until my 2 year cellphone contract was up before making the switch to a cheaper plan (Cricket is awesome if you're coming off AT&T by the way, as it basically IS AT&T). Also, with two kids in daycare, presumably you could plan that you won't make the move until you are down to one in daycare?

Are there expenses that you won't even miss - for me it was remote burglar alarm monitoring, regular pest control spraying, and I'm sure other stuff. I used to drink a couple of bottles of wine a week, now it's probably one every month or two. Do you have cable AND netflix AND Hulu Plus? Cut one. Then cut another.

On the frivolous spending side, it helps me to budget for things that I don't necessarily need but want - I'm sure I would get laughed at on MMM for having a clothing budget and a skin care budget and a yoga budget, but it helps to draw attention to those areas and it really does help me rein in the spending long term while still allowing enjoyable spending.
Sarah

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Watty
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Re: Planning for career change and big drop in income

Post by Watty » Mon Apr 06, 2015 5:29 pm

We have had changes like that in going to several permutations of two incomes, one income, and one income and part time income.

It it important to do dummy tax returns to see just what the after tax change is since that is hard to predict.

You would need to figure out your after tax numbers but you need to be prepared that you may be taking a 30% pay-cut but the real place that you feel it is that you may be taking a 90% reduction in your disposable income which could be a lot more painful than you are expecting.

You will also be adding years to when you can retire. If you can actually live comfortably on a greatly reduced income then if you did that while working you could also likely retire very early. In your current position if you cut back drastically you could likely save $100K a year or more and be financially independent pretty quickly.

Another pitfall is that you may find that a public service job that pays $60K may actually be more stressful in a different way and you may end up working harder at that the lower paying job than your current job so you need to be very realistic about what you are getting yourself into. Going into the next public service job with the attitude that you are semi-retiring will not work out well.

Before you make any radical changes you might want to consider taking a sabbatical or trying out other positions at your current level, or if possible working half time.

Slowmaha
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Re: Planning for career change and big drop in income

Post by Slowmaha » Mon Apr 13, 2015 2:14 pm

englishgirl wrote:I've dropped my income several times over the past few years trying to do something similar (although I am changing careers). Each time I thought I couldn't possibly reduce expenses, and you know what, I did it. Now I can't even remember what on earth I used to spend money on.

I suggest signing up for mint.com immediately. And if you haven't already, read some posts on Mr. Money Mustache. Start looking at where your money is actually going. And then start cutting the fat. Some of it is going to have to be a plan on paper until a good time comes along to make a change - like I waited until my 2 year cellphone contract was up before making the switch to a cheaper plan (Cricket is awesome if you're coming off AT&T by the way, as it basically IS AT&T). Also, with two kids in daycare, presumably you could plan that you won't make the move until you are down to one in daycare?

Are there expenses that you won't even miss - for me it was remote burglar alarm monitoring, regular pest control spraying, and I'm sure other stuff. I used to drink a couple of bottles of wine a week, now it's probably one every month or two. Do you have cable AND netflix AND Hulu Plus? Cut one. Then cut another.

On the frivolous spending side, it helps me to budget for things that I don't necessarily need but want - I'm sure I would get laughed at on MMM for having a clothing budget and a skin care budget and a yoga budget, but it helps to draw attention to those areas and it really does help me rein in the spending long term while still allowing enjoyable spending.

I'm doing exactly that (will have to try mint).. I'm a big fan of MMM and hopefully can implement some of his ideas, most notably going to one car (or at least sell an expensive car and get a little beater)... Here's to hoping.

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