How to Financially Plan for a Job Change

By Joel Chouinard, ChFC®

August 16, 2023

This article was originally published in Law.com.

If you are considering a job opportunity outside of Big Law, you may be questioning whether the new salary can support your current lifestyle. Let’s face it, moving away from Big Law will likely involve a pay cut, whether you go in-house, to a boutique firm or the Government, or decide to leave the law profession altogether. There are practical steps that you can take to ensure that (1) you will feel confident enough to step away from your current position and (2) you won’t need to come back because you cannot afford your lifestyle. In other words, how can you remove the infamous “golden handcuffs”?

Here are some tips that I’ve learned from my wife’s own transition away from Big Law:

1. Dive into your spending and make cuts where necessary

The first tip is to take a deep dive into your expenses by creating a budget and cutting unnecessary expenses. This may be an obvious tip, but it’s harder said than done. For starters, not all Big Law attorneys live a lavish lifestyle. However, when you work sixty plus hours per week, it’s natural to opt for convenience and hire people to do the daily tasks that you don’t have time to do. If you start adding all those expenses together (housekeeping, lawn service, pool service, eating out multiple nights per week, nanny service, etc.), a good chunk of your salary ends up going to convenience.

Below is a 3-step process to create a budget:

1. Review transactions and categorize spending: First, go through all of your credit cards and bank account transactions and sort them by categories of spending (e.g., housing, transportation, groceries, kids, etc.). Then, look at each category and determine how much, on average, you spend every month. I recommend using a budgeting tool such as Monarch Money, so you can see all of your transactions in one place. Without tracking every expense down to the penny, try to be as accurate as possible when creating your budget, so it truly reflects your spending habits. It’s easy to underestimate categories like shopping, dining out, and travel because they aren’t fixed transactions every month.
2. Divide your expenses among essential, discretionary, and convenience: Once you figure out how much you spend on each category, divide your expenses among essential, discretionary, and convenience. Essential expenses are those that are essential to living, such as housing, utilities, and groceries. Discretionary expenses are fun expenses, such as travel, shopping, hobbies, and entertainment. Lastly, think of convenience expenses as tasks that you could be doing if you weren’t working so much. For example, maybe you eat out a lot because you don’t have time to cook, or maybe you hired a nanny because you cannot pick up your kids after school.
3. Determine where you can cut expenses: The last step in budgeting is to determine where you can cut back or eliminate expenses. Think of expenses that aren’t adding meaningful value to your life or that are incurred for convenience and could be cut out if you were working less. The goal isn’t to stop living your life and go live under a rock. Rather, the goal is to find a way to reduce your expenses so that you can comfortably live within your means after the job transition.

2. Don’t forget about health benefits

Depending on where you end up after leaving Big Law, you may or may not have access to health benefits. It’s important that you factor that into your budget, as this could be a large expense item, especially if you elect to go on COBRA or shop coverage in the individual marketplace. If you are going to an in-house position at a large corporation or going to work for the Government, this might work out in your favor, as benefits in corporate America and those offered by the Government tend to be more subsidized than at big law firms.

3. Cut back on retirement savings

You may be thinking, what kind of financial planner would recommend cutting back on saving for retirement? Well for me, it’s all about setting priorities. Yes, we all want to retire one day, but that is likely many years away for you. If leaving Big Law is your number one priority (maybe because you have young kids at home and want to spend more time with them), then cutting back on retirement savings will put extra dollars into your pocket and give you more breathing room as you make the transition. When you get back on your feet, then you can ramp up your savings again. Your new employer may even offer a 401(k) match, which would allow you to catch up on the previously missed contributions. Just make sure those extra dollars don’t go straight to funding some of the expenses you are trying to cut out.

4. Build a sizable “transition” savings account

As I mentioned earlier, I wouldn’t advise leaving Big Law without first having a financial plan. Otherwise, you might end up right back where you were.While you are still earning your Big Law salary, try to set aside a large chunk of money in a savings account that could help supplement your new income during the transition. The size of that savings account will depend on how big of a deficit, if any, you will have between your new after-tax salary and your current expenses.Just keep in mind that you will not be able to run a deficit in perpetuity. At some point, you would run out of savings. That said, this account could give you a cushion and buy you some time while you adjust to your new financial reality. Note that this account would be in addition to your current emergency account.

Following these tips will help you prepare for the transition. But the key is to start early. Cutting back on spending and building a sizable “transition” savings account could take months, if not years. If you are just starting out in Big Law and are not sure whether you see yourself there long term, then I recommend living below your means early, so that if you do end up leaving, the transition is smoother. The decision to transition jobs (or even careers) will ultimately require a leap of faith because no one can predict exactly what will happen. But having your finances in order before you leave could make your decision a lot easier and allow you to never look back!

SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.

SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.