At a Career Crossroads? 5 Financial Moves to Make Before you Quit
As COVID-19 continued in 2021, a record number of Americans decided they’d had enough of their jobs. According to the Bureau of Labor Statistics, on average, around 4 million Americans quit their jobs each month since April of last year. Many left for new opportunities, but some just decided to quit first and seek a new job later. Some who voluntarily resigned from at least two jobs since March 2020 said “the pandemic made them feel life is too short to stay in a job they weren’t passionate about,” according to research by job-search site Indeed.
Will the “Great Resignation” continue in 2022? It appears so. If you’re thinking of joining the ranks of those looking for a better opportunity, you should have plenty of it. The most recent data from the Bureau of Labor Statistics showed 11 million jobs available on the last business day of October, and “help wanted” notices still seem abundant as we start the new year. But should you leave your current job before you accept a new one? If you do choose that route, make sure you’re financially prepared for a search that may last longer than you expected.
Here are five ways to help you say, “I quit!” with confidence:
#1 Build up your emergency fund
Many experts estimate that you should keep three to six months of living expenses in your emergency fund to cover housing, food, healthcare, utilities, and other items, if necessary. But each situation is different. If you’re in a specialized field or you’re an executive, for example, it may take you longer to find a new job than you expected. And, in 2022, inflation continues to surge, so you may find your emergency fund doesn’t cover as much as you had hoped. Before you submit your resignation letter, consider adding more money to your emergency fund to cover increasing costs and the possibility of prolonged unemployment.
#2 Determine what you need to live on and look for areas to cut
Without a regular paycheck, you’ll need to take a closer look at what – if any – cash flow you’ll have, and whether it will be enough to cover expenses without having to tap your savings or use a credit card. If you don’t already follow a budget, review your expenses for the last few months as a start. Once you’ve determined what you must spend each month (think mortgage, car payment, utilities, food, outstanding loans, etc.), start thinking about areas you could cut if you need to (think subscriptions, entertainment, etc.). Then create your spending plan, considering what you will cut if you don’t find your perfect opportunity in three months, six months, nine months, or a year.
#3 Figure out how you’ll pay for health insurance
The Consolidated Omnibus Budget Reconciliation Act, or COBRA, enables you to continue the health insurance you had at your old job for up to 18 months (or 36 months in some cases), but COBRA plans aren’t cheap. That’s because once you leave the company, you’ll likely have to pay 100% of the plan costs, plus administration fees. You may be able to transition to a less expensive private health plan or Medicare, but your coverage may not be as generous as the plan you just left. Your budget should include a line item for out-of-pocket health expenses, especially if you or a previously covered family member anticipate needing treatment.
#4 Pay down credit card debt
Ideally, you want as little debt as possible before entering a potentially extended unemployment period. If you can pay down your credit cards, do it. If not, start looking for cards with lower interest rates that will allow a balance transfer. Some offer 0% APR on balance transfers for a promotional period, which would enable you to pay more toward your principal. If you have cards with large annual fees, you may want to consider using cards with no annual fees instead.
#5 Don’t forget your 401(k)!
While you can choose to leave your 401(k) with your previous employer while you’re unemployed (depending on your company’s rules), don’t forget about it when you start your new job. You may be able to rollover your 401(k) to your new employer right away. (Check with your new Human Resources department to learn if your employer has any restrictions.) A direct transfer is the best option, if possible. If you’re tempted to tap your 401(k) account during an extended period of unemployment, doing so can be costly. You’ll owe income tax on your withdrawal if you are younger than 59 ½. If you’re younger than 55, you may also face a 10% penalty. Using your 401(k) should be a last resort in any case, because you’ll be robbing your future self to pay your current self.
People over 50 who have little in savings outside of their retirement plan may want to take some time to build up some extra savings when they take a new job. One way to do this is to reduce or delay contributing to the new company’s retirement plan. Having quick access to capital outside of retirement dollars can be handy, particularly if you need to pay down a credit card you built up during a non-working period. You can always start your retirement contributions again after you reach your short-term savings goal.
These are just some of the things you’ll need to think about before quitting your job, but depending on your personal situation, you may have others. Your financial advisor can also be a great source of financial information and counsel during major life transitions such as this one. Finding your dream job is exciting – being financially prepared will allow you to focus on the search without worrying how to make ends meet.