Are you daydreaming of telling your boss you quit, but you don’t have another job lined up? Whether the feeling is prompted by a dysfunctional work environment or a desire to just get a break from the daily grind, the idea of leaving your job can be exhilarating.
But even when quitting your job seems likely to be a huge weight off your shoulders, it can be terrifying and messy. Life is expensive, and it’s not easy to make your finances work without a steady income. You have to pay bills, feed yourself, and account for unexpected expenses.
You probably don’t want to end up scrambling to cover your rent or stuck on someone’s pull-out sofa, so it’s important to put together a solid exit strategy before you wave goodbye to your employer. If you’re about to call it quits at work, implement these six financial strategies to help you prepare for what’s to come. Your bank account — and your stress level — will thank you.
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1. Do your homework
Even if you think you know what you’re in for when you quit your job, it’s helpful to talk to someone who’s gone through it. There may be unforeseen challenges that you can plan for with insight from someone who’s been there, done that.
Ask around for contacts who can offer insight and do your own research, too. LinkedIn or other social networking sites can be great places to get unbiased opinions on what it’s like to quit your job without a clear plan for future employment. These contacts can be really useful for helping you develop a plan before you take the leap.
Anecdotal advice can come in handy, so don’t discount what others tell you. Even if you hear that some people have struggled after quitting their jobs, you may learn from mistakes they made. That should put you in a better position to formulate a plan that avoids pitfalls you hear about from others with experience.
2. Have enough living expenses in the bank
Unless you have a skill that’s in particularly high demand, your job search could take a while — prior to the COVID-19 pandemic, the average job seeker spent about five months looking for a new job. It could take even longer due to the pandemic.
If you want to quit your job, make sure you have at least six months’ worth of living expenses in the bank to be safe. Consider this separate from your emergency savings fund, which should also contain enough for three to six months of living expenses. You’re probably going to need both accounts during this adventure, because with just one, you could end up in a real mess when unexpected costs come up.
To figure out exactly how much to save, add up the monthly costs for your rent or mortgage, as well as the average cost of your groceries, utility bills, transportation, and other common expenses. Include the new costs for your healthcare coverage if your employer currently covers part or all of the policy cost.
Multiply that number by six to get a baseline idea of how much to save. Put this money in a high-yield savings account.
3. Keep your fixed expenses as low as possible
While your budget needs to be strict, it also needs to be realistic, so it helps to keep your fixed expenses as low as possible when you’re putting together a budget to quit your job.
You already calculated your savings goals, so start with that as your absolute maximum for your monthly expenses. Outline all of your monthly costs and see if you can cut them down. If you find anything you know you can cut, like, say, some streaming subscriptions or a weekly Sunday brunch, get rid of these costs before you quit your job.
Once you’ve made initial cuts, look for ways to trim down other expenses, too. You probably can’t go without a phone, but maybe your cell plan is up for renewal and you can snag a cheaper one with a new provider. Or if you have a gym membership, maybe you can swap out a full membership for more limited access.
There are often ways to save without completely giving things up. A word to the wise, though — don’t use cost-cutting measures to lower the amount you need for your savings plan. Stick with your initial calculations. Save up what you originally planned for, then come in under budget each month instead. At some point, you may be glad you have a few extra bucks lying around.
4. Know your backup employment plan
Since you’re going after a new job, start looking as much as you can at opportunities that may be available in the near future. The job market can be unpredictable, so get an idea of what you can pursue in your current field and what’s available in any other fields that might fit your skill set. A backup plan could come in handy if jobs in your current industry are scarce when you start looking for new employment.
Get as prepared as possible for landing that new job, too. Brush up on your interviewing skills, clean up your resume, make new contacts, and get everything you can in line for future employment. Do what legwork you can before you quit so you are confident you will get a new job. You don’t want to be without prospects, adding stress to an already demanding situation.
5. Find a quick way to make money if you can
If you are quitting without another job lined up, you may not have steady income for a while. Even with a savings safety net, look for a quick way to make money, too. That could be renting a room or your home on Airbnb or VRBO, or it could be picking up gig work on the side.
Some creative platforms or gig work can take a while to get started. It could take a few weeks to get registered with the county if you’re driving for a rideshare, or take a while for work to pick up on a freelancing platform, so get started on any requirements sooner rather than later to expedite making money with your side gig if or when you need it.
6. Make sure your debt is manageable
If you want to quit your job, you need to make sure your debt is manageable. This is especially true for high-interest debt like outstanding credit card balances or other loans.
If you have a lot of high-interest debt, try to get it under control before you cut ties with your employer. Otherwise, you may have to divert funds from your budget to your credit card payments, and make each dollar stretch further until you have a new source of income.
There are lots of good strategies to pay down debt, so pick one and stick to it. The less you owe each month on your credit card bills, the better your situation will be when you quit.
One last piece of advice
Even if you’re itching to quit your current job, think hard before you make your move. There are lots of unknowns when you’re between jobs, and it can be hard to get back on track. The job market and economy are unpredictable, so make sure you have a good plan and backup plan before you say goodbye. It’s the only way to start off your new journey on solid footing, and that’s the most important factor of all.
View more information: https://www.fool.com/the-ascent/personal-finance/articles/6-ways-to-financially-prepare-for-quitting-your-job/