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The Role of Career Planning in Financial Planning

Your career decisions—at least the initial ones—take up a lot of time and planning in your early adult life, starting in high school and continuing through college or trade school. This makes sense because choosing a career is one of the biggest decisions you’ll make; however, how your career plan is connected to your long-term financial plan and vision for your life is often overlooked.

No matter where you are in life or in your career journey, you can set yourself up for career and financial growth, success, and happiness! Below are five things to consider in your career plan that can boost or break your financial plan.

Income potential

This is probably the most obvious connection between your career and finances. But many people don’t look at the full trajectory of a career through an entire working lifetime. It’s important to research the expected salary growth as well as the average starting salary for a job. Ask these questions:

  • What promotions and advancements could you make throughout the career?
  • Is there a dead-end or a salary plateau at any point?
  • Could you use the same skills to change career paths if you wanted to?
  • How long does it usually take for someone to advance through the ranks in the chosen career path?

Benefits and Perks

Taking advantage of employer benefits can significantly improve your financial situation. If you’re considering a job that is known to not have access through an employer to retirement planning, disability or workers comp, and/or health insurance, it will mean your financial plan must include a way for you to pay for all of it or most of it on your own.

Look for employer-sponsored retirement accounts like 401(k)s, 403(b)s, or SIMPLE IRAs. Even if your employer doesn’t have a matching program where they contribute a percentage of your salary to the account, just offering the option allows you to set aside pre-tax money for retirement. This can save you big money each year in taxes and help you plan and save for retirement with auto-deductions from your paycheck. Some employers offer Roth options, meaning all contributions are after-tax dollars (income tax has already been deducted), but the account grows tax free.

Other tax-advantaged benefits to look for include Health Savings Accounts (HSAs), Flexible Saving Accounts (FSAs), and Child Care FSAs.

You’ll also want to consider what kind of insurance plans companies, non-profits, or government agencies offer employees in your field. If you’d work at a for-profit company, see if it offers stock options, employee stock purchase plans (ESPP), incentive stock options, or non-qualified stock options. Each of these investment opportunities has a tax implication you can ask a CPA or financial advisor about.

Cost of Living

Based on your career path, you might be tied to living in a big city, a university town, a rural community, abroad, near a volcano—regardless, be sure you’re able to pay to live where you work and that it will align with your other values. If it’s in a location far from family, you might find yourself spending much of your yearly budget traveling back to family. Or perhaps you miss living in a place with lots of arts and culture opportunities. Also consider costs for your commute, expected wardrobe, self-funded electronics like the latest smartphone or laptop, and any continuing education or certifications.

You want to make sure realistic living expenses (and state income taxes) can be covered by the expected salary. They don’t always match up—your industry might be located in expensive San Francisco or New York City, but starting wages might be so low you’ll need to live with multiple roommates and work a second job. It doesn’t mean it isn’t worth it; it means you’ll need to have a solid budget in place to follow your career aspirations.

This can also work in reverse, where an incredible career opportunity leads you to a lower cost of living area, increasing your net worth even if your salary doesn’t change or decreases.

Saving for “going it on your own” or switching careers entirely

If your career plan includes working for a small startup, becoming a small business owner, working freelance, or changing careers entirely, you’ll probably take a few steps down on the salary ladder (at first, at least). You’ll need to implement a savings plan in advance and adjust your budget to account for decreased income, variable income, and/or increased expenses.

Retirement

A good career plan includes a view for retirement—a large part of any financial plan. The ability to smoothly enter retirement at a time you want requires early and consistent saving and continual reassessment as you move through your career. The career path you choose may determine in large part when you’ll retire based on expected salary, employer retirement benefits, and the type of work (i.e. anything with a physical or age limitation).

Career planning and financial planning success rely on many of the same things: continual reassessment, research and informed decision making, perseverance, and hard work, so it shouldn’t be a surprise they are closely connected in making your life what you want it to be.

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