Handling Your Finances During Career Transition

This is the tenth article in my Transitioning PhD Blog Series, written by contributor Mike Davies, PhD. 

What do most people find even more stressful than navigating a job search or preparing for a transition away from academia? Finances. Money. And not just money itself, but the questions that constantly surround it: Where is it going? Do I have enough? Will I ever be able to pay off my student loans? These are just a few of the questions I get from my clients that are going through this transition. However, the most common question I get from academics as they transition to their next career phase is: How far behind am I with my savings, debt, or retirement? Take comfort in knowing that you’re not alone, and chances are it’s not as bad as you think. In this article, I’ll review key considerations everyone in transition must consider, and provide a perspective that tends to resonate with folks transitioning out of academia.

Build the Right Mindset

Just like you should have a clear strategy for conducting your job search, you should also have one for managing your finances. Your transition will likely be much more difficult if you lack clear focus for handling your finances in an objective way. Each individual’s situation is different, so it’s crucial you have an effective framework and mindset for handling your finances during career transition. When you’re equipped with both of these, you can then begin to assess whether you’re asking the right questions to help solve your problems. To build the right mindset, I tell my clients to focus on two simple, yet crucial fundamentals: lifestyle and financial goals. Collectively, these fundamentals offer purpose to help each individual define how he or she values money. When you understand these fundamentals, fear tends to dissipate and you begin to make progress toward taking control of your financial situation.

Define Your Lifestyle  

Because time is one of the biggest unknowns for anyone during a job search or career transition, it’s crucial to assess your current—and optional—lifestyles. This is a tedious but important step because it is difficult to predict when you are going to get a job, or determine exactly what your entry-level income is going to be before getting a job offer. So, it’s best to build a plan around it so you can stop worrying about it.

You’ll need to do your own research to determine what you might reasonably expect for a salary, but I’ll offer a quick empirical observation about income for first-time industry PhD-level scientists in the Life Sciences, in the Raleigh/Durham area of North Carolina, because that’s what I’m most familiar with. For folks that are able to continue working in research and development, salaries tend to be in the $70,000-$90,000 range. For PhD-level scientists that transition into an “alternative” PhD career, the salaries are typically in the $55,000-$75,000 range. If you’re wondering about what job titles garner these salaries, they tend to be medical writers, regulatory affairs professionals, contract research associates, project specialists in CROs, and study directors. However, “alternative” PhD roles that typically start with higher salaries are field application scientists, technical sales, and medical science liaisons. This is important to know, but it’s not enough to make an informed financial assessment to determine which career path will be more lucrative. Another empirical observation (I’m basing this on discussions I’ve had with nearlyPhDs) is that the jobs that pay more in the beginning tend not to see significant salary increases over the next five years (except for the sales positions, because they operate on a much different scale). On the other hand, folks in “alternative” PhD roles tend to see their salary increase to the $75,000-$90,000 range within two to three years. I express this only to emphasize that it’s easy to fall into the short-term trap of making a financial decision that detracts from a career path you are passionate about. Having this type of perspective will help if you are faced with this decision. I also encourage you to do your own research when it comes to salary projections for specific industries and locations.

Getting back to lifestyle, the first step is to define your current lifestyle. Whether you are single, married, or have children, you need to be as objective as possible. To be more specific, your current lifestyle is your budget without any financial stressors, such as unemployment. To determine this, the first thing I do with all my clients is an analysis of the previous three months’ worth of expenses. There is no hiding in this exercise. What this does is provide an objective viewpoint of where your dollars are going when you are not thinking about it. Those beers you might have at trivia night? They add up. An objective view of your existing expenses is essential in building a financial plan. This is your current/reference lifestyle.

But you need more than a current lifestyle. I recommend identifying three to four different lifestyle levels. For example, Lifestyle One = current; Lifestyle Two = comfortable, but eliminates all excess expenses such as cross-country vacations or new cars; and Lifestyle Three = spartan, where you resort to the stereotypical food staples of ramen noodles and mac & cheese. After you’ve broadly identified each of these lifestyle levels, build an actual budget have a clear understanding of what these are so you are prepared when and if the time comes to implement. Fun exercise, right? Of course not. But it’s necessary. After you’ve gone through the exercise, pause and move on to the financial goals. We’ll come back to this later.

Identify Financial Goals

The next area to address is identifying your short-term, mid-term, and long-term financial goals. This is important because it helps you determine what buckets you need to put your money into, how much, and for how long. Let’s break this down into easy terms. I always start with the short-term and focus on the next 12 months. The most common short-term goals are paying down credit cards and building emergency savings. For folks transitioning jobs, or leaving academia, the goal is usually to not add too much debt, and that’s okay. It’s always important to remember that it’s not a matter of if you get a job, it’s just a matter of when. What that means financially is that your income will be turned back on! Mid-term goals typically include paying down student loans, buying a home, or preparing for family expansion (i.e., a wedding and making a new person).

For the long-term goals, I’ll ask a few very simple questions: When do you want to retire? What income would you like to have on a monthly basis, and what fun extracurricular activities would you like to do, e.g., travel, golf, quilting, etc.? This is a difficult conversation for most folks and couples because it’s not an everyday topic of conversation. It’s particularly tough for folks transitioning from academia because retirement is a foreign concept: We have convinced ourselves that we either will work until we die or we can’t retire because of the academic path we chose. People also tend to ignore this conversation, which is a mistake because it’s the source of most of our financial stress. If we don’t know what we want and when we want it, we can’t figure out if we are on track to accomplish those goals. Thus, we become ignorant to our finances and hope for the best. From what I’ve seen, hope doesn’t solve financial problems. Have this conversation now; you’ll thank me later.

Now that we understand our goals, and have defined our various lifestyle levels, we can get to the fun stuff: playing with the numbers. The variables that I use to play with the numbers are salary, retirement contributions, compound investment interest, tax projections, and lifestyle expenses. The ultimate goal of this exercise is to determine annual cash flow and retirement sustainability. The complication is that it involves a circular calculation: a change to one variable will change multiple variables and ultimately change cash flow. On the other hand, it is a very empowering—and visual—exercise. You will either find yourself happy, or not happy. Either way, you can now make an informed financial decision about your career, and if you’re not happy, at least you know what you need to do to get back on track. The quicker you know this information, the quicker you can solve the problem.

Takeaway

The moral of this story is to take a strategic and honest view of your finances. This will eliminate the surprises that are in your control. Life always finds a way of messing with your plans, but it’s important to do the best you can with what you know. The strategies I’ve outlined in this article are also purposed to help you anticipate the emotions that come with making financial and career-related decisions before they happen, so when you’re faced with them in real time, you’ll already know what to expect and what to do. This allows you to stay focused on the main goal, which is to secure a full-time job that satisfies your work preferences—and your bank account.

Disclosure: Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Carolina Wealth Partners are not affiliated.

About Mike Davies, PhD

I started my career as a scientist at the University of Minnesota-Twin Cities, where I earned my PhD in biochemistry. I had a very positive experience: I loved my project, my lab, and my advisor, Howard Towle. As such, I continued my scientific career as a postdoc at Duke University. Again, I had a great experience with my project, lab, and advisor, Debbie Muoio. However, I began to realize about three years into my postdoc that academia was not a healthy place for me. I did not have any balance in my life and did not like my career prospects. Thus, I decided to pursue work outside of academia and in “Industry.”

I thought I was stressed with my postdoc, but the job search proved to be much worse. I was navigating my career transition completely unprepared and in unknown territory, resulting in a job search that was defined by a long series of failures. I ended up getting one really good job offer and would have eventually landed in a position that was suitable for me, but I realized that I had a passion for another career. So I left science to become a small business owner as an independent financial advisor. I never intended on leaving science and throughout this process, it became clear that my story was not unique. Not long after I started working in my new gig, I made the decision to share my story and help other folks make their transition a little less painful than mine, which is why I started a local life sciences networking group. You can feel free to contact me at Michael@carolinawealth.com. I meet with folks all day, every day and would definitely like to hear your story.[/vc_column_text][/vc_column][/vc_row]