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Financial Tips for Career Changers

Many Americans shifted into lower-paying jobs during and after the recession out of necessity. Some chose lower-paying, lower-stress jobs for health and lifestyle reasons. But a lower salary often requires workers to rethink their priorities.

After Diana Melencio, 32, of New York City, shifted from a job in finance to entrepreneurship in late 2013, she did a series of financial trade-offs, moving into a cheaper apartment, watching Hulu and Netflix instead of cable TV and walking to work rather than paying over $100 for a monthly subway pass.

"I've made it work by cutting my spending in half ... and then cutting again in half ... and then cutting it again," jokes Melencio, now co-founder of fashion startup okmyoutfit.com. She originally paid $150 a month for an Equinox all access membership, then downgraded to cheaper and cheaper gyms until finding one for $25 per month, since exercise is a priority for her.

However, Melencio has found these trade-offs to be worthwhile. "For me, it's about finding greater satisfaction with where my career was going," she says. "I found myself dreading going to work. Now I love going to work, and I love what I'm doing."

Read on for expert tips on adapting to a lower income.

Separate wants from needs. Go through your check register or bank statements to see where you've spent your money over the past several months, suggests Larry Rosenthal, president and CEO of Rosenthal Wealth Management Group in Northern Virginia. Then separate those expenses into two columns: wants and needs. "Mortgage is a necessity," he says. "Starbucks is probably a lifestyle choice." He recommends that couples do the exercise independently "and come to the table with different choices." That way, they can talk through discretionary spending and see what areas could be reduced, at least temporarily until cash flow increases.

That said, you may be able to lower spending on necessities by moving to a cheaper apartment or revisiting your insurance policies. "Take a look at increasing the deductible on your auto insurance," Rosenthal suggests. That will typically lower your premiums, but if you make a claim, it will mean higher out-of-pocket costs.

While looking at several month's worth of spending should give you a good idea of where your money is going, remember that some expenses only come up once a year (for instance, if you pay life insurance premiums annually), but you still need to factor those items into your overall budget.

Embrace the savings where you can. A previous high-paying job may have carried expenses like dry cleaning suits or commuting long distances, so if those expenses no longer apply, think about how to deploy that money in other ways. Also take advantage of any money-saving benefits your new employer may offer such as fitness reimbursements or discounts on cellphones or other products. "There's a lot more to an employment package [than salary]," says Eric Pritz, certified financial planner at Signature Estate & Investment Advisors in Redondo Beach, California. "Maybe they pay more of your health package, or maybe they pay for life insurance so you don't need to keep your policy."

Look for extra income sources. Aside from cutting your spending, you may also want to explore ways to supplement your income -- so long as it doesn't interfere with or distract from your new career path. For instance, Melencio rents out her second bedroom on Airbnb and uses her financial background to consult with other startup companies on the side to help build their financial models. But during the daytime, she focuses on building her own startup. "I do my contracting projects after hours and on weekends," she says.

Keep saving for retirement. Don't make the mistake of cashing out a retirement plan or halting contributions to make up for reduced cash flow, unless absolutely necessary. "That's usually one of the first things that people think about, and that's a mistake," Rosenthal says. "They need to keep saving for their retirement plans and cut out cable TV." (However, you must have earned income to contribute to an IRA, so it's a different story if you're between jobs. Those with a non-working spouse can contribute up to $5,500 to a spousal IRA or $6,500 if they're over 50.)

"You definitely don't want to jeopardize the longevity of your retirement plan at this point," Pritz says. "If you're making a career change for happiness, maybe you have to work longer and extend your working career [due to lower income], but if you love it, that makes it easier."

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