How to Ensure Against a Rainy Day for Your Career
How to Optimize Career Goals With a Career Asset Working Capital Fund
Given a moment, I’m sure you can recall at least one incident from your childhood when you heard something related to preparing for a “rainy day.”
I remember times feeling like our household was in a constant state of readiness for storm clouds that could blow in without notice and upset the order of life. Our rainy day fund provided a limited safeguard against disasters that could assail our already over-stressed financial condition. Of the little we had left over after bills were paid, at least something went into the fund each month.
As I grew older I came to appreciate the importance of having a rainy day fund and am grateful to my grandmother for instilling the lesson during my formative years. In my practice as a financial advisor, I encourage all of my clients to maintain cash reserves for emergencies, a more contemporary label for the time-tested rainy day fund.
Career Asset Working Capital Fund
When it comes to your career asset, it’s important to maintain reserves not only for an emergency situation but also for ongoing career investment. I call this reserve the Career Asset Working Capital Fund and it is separate from your emergency cash reserves. This fund is established with the purpose of developing, maintaining and optimizing your career asset. This fund becomes even more important in your late career and encore career stages.
Most financial advisors recommend that clients maintain cash reserves for emergencies in the amount of three to six months of fully-burdened living expenses including mortgage/rent, utilities, and food. However, the Career Asset Working Capital Fund amount will vary depending on risk factors including your career velocity and your career volatility.
Career velocity refers to the number and frequency of job changes. If you are prone to or the nature of your work dictates that you’re changing jobs every few years, you have a higher degree of velocity in your career asset.
Changing jobs often come with increased expenses related to the job search, networking, creating your resume and other self-promoting material, career coaching or counseling and other costs. Those costs can be significantly higher if the need for a job change stems from an unforeseen event like an involuntary termination or reduction in force.
CEOs, who traditionally have a higher turnover rate than many other careers, may need a larger amount in their fund versus a lower level worker who might have an easier time finding a job if they lost their position.
Career volatility is the fluctuation in income over the life cycle of your career asset. Sometimes that volatility is the result of a job change yielding a lower salary than a previous job. Sometimes, it is the outcome of a career change in which you take on an entirely new career path that may mean you earn a lower wage for a period of time as you build skills in the new career.
Regardless of the reason, potential changes in your income represent a risk factor that should be calculated in your Career Asset Working Capital Fund.
Career Asset Fund
While emergency cash reserves are used to pay for living expenses, the Career Asset Fund is used to fund building or maintaining your skills, paying for job and career change expenses, and providing for a career sabbatical or Family Medical Leave periods. Not all of the Career Asset Fund is needed in cash. Some of it may be in the form of lines of credit, 529 Plans or even traditional retirement savings accounts like 401k plans which can be used for longer-term or higher-cost career investments like sabbaticals or returning to school.
Many employers offer benefits like tuition reimbursement and pay for job-related attendance at conferences, workshops, etc. These opportunities not only help you build value in your career asset, your employer benefits from your expanded skill and knowledge.
Employers often have stipulations, including pay-back periods for tuition reimbursement so it’s not recommended to use this benefit if it’s your intent to leave your current employer within the pay-back period.
How Do I Identify How Much to Invest?
To identify the amount of investment you need in your Career Asset Fund, consider the following.
- What is the annual cost of maintaining any credentials, professional designations, or licenses in your career? Are there any you should have but currently do not? Consider enhancing your career asset by investing in these areas. Keeping these credentials in retirement may also be something you want to budget for.
- What are the annual dues of the professional associations to which you belong and want to maintain?
- What conferences, conventions, workshops or seminars do you currently attend and would want to continue attending? Are there others that you haven’t been to in the past but would be worthwhile as you build or rebuild your career value? Be sure to factor in program costs as well as travel, lodging, and food expenses.
- If you were to return to school, how much would you need for tuition, books, and other costs? Be sure to consider if you are refreshing/updating existing skills or if your intent is to retrain in a new career area. With enough forethought, these expenses could be funded by a qualified 529 plan which comes with tax advantages as well.
- How much money will you need to pursue other employment opportunities? Will you need a career coach? Will you use a professional resume writer? How much will you need to spend on networking events?
Maintaining a Career Asset Working Capital Fund will help ensure you have resources available to invest in your career asset, insulate it against a rainy day, and, if needed, continue to use it in retirement.
This article comes to us courtesy of Michael P. Haubrich, author of Career Asset Management: Getting Ahead, Staying Ahead, and Using your Head to Maximize your Career Value.