Thinking about leaving your job? The decision can be both scary and liberating, but if you are ready to follow through, it’s important to make sure the process is thought out. Whether you are quitting to get more freedom, higher earning potential or a more enjoyable career path, you will likely need money in the bank and a plan in place. Check out the financial moves you should make before you quit your job so you can have a smooth transition out of your current position.
Calculate Your Barest Budget
You will probably have to cut back if quitting your current job is going to bring a disruption in cash flow. It’s important to adjust your budget while taking all your current expenses into account. Bringing it down to the essentials, you may have to forfeit extras like dining out, travel, cable TV and new clothes, at least for a little while. It’s a good idea to prepare yourself in case you have low- or no-income months ahead. Now that you know how much you need to live, consider freelance, consulting or part-time work to replace the steady paycheck.
Build Up Serious Savings
It’s always a good idea to have an emergency fund saved up. If you don’t have one, it’s time to start building one. Ideally, and especially if you are leaving your job, you should have at least six months of expenses saved up. Now that you have your pared-down budget calculated, you have an idea of what you will need to get through the next half of a year.
You can adjust that number higher or lower depending on your circumstances, keeping in mind that anything excess is just adding a longer buffer period for yourself. If possible, you may also want to look into any bill prepayment your providers allow. Sometimes you can pay things like utility or mortgages up to a month or two in advance. This way, you don’t have to worry about getting behind on your bills, loans or debt as a consequence of your departure from employment. (A late payment can have a serious negative impact on your credit scores. You can see how your payment history is currently affecting your credit scores for free on Credit.com.) It’s important to make this clear and not just send in extra money with another payment so you know what the money is going toward.
Review Retirement & Health Care Options
Salary isn’t the only thing affected when you leave a job. You also will want to consider other financial issues often tied to your job like life insurance and retirement savings plans. If you have been contributing to your employer’s 401(k) plan, you will have to decide whether you should leave it, roll it over into a new account or cash out. The most important factor to consider with a retirement plan change is that you should let your plan administrator handle the switch and be aware of possible taxes and fees.
Health care options also often change when you leave a job, but remember that federal law mandates that you have coverage. If you are single and fairly healthy, you might be able to purchase a cheaper policy from the government or another insurance provider. You should also consider other perks you get at your job and how life without those will affect your monthly expenses.
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