Planning

What You Should Do, Financially, Before Quitting Your Job

Financial Checklist Before Quitting Your Job

At some point or another, quitting your job can seem like the best option. You might not be getting much out of your current position and want to explore other career options.

Or, you might want to devote more time at home to raising your kids. No matter what your reasons are for leaving your current position, you want to be sure that you are financially secure and that you’ll be able to maintain your standard of living.

Talk it Over

If you’re single and don’t have kids, you have more leeway when it comes to quitting your job. You don’t have to worry about how your decision will impact others.

But, if you are in a relationship or married, you need to discuss your plan with your partner before you quit. If you have kids, you need to remember their needs before you do anything, too.

Ideally, the two of you will hash out the different options you have and develop a plan that covers a number of financial bases:

  • Income
  • Insurance
  • Retirement

Another thing to discuss is how long you plan on not working.

Are you going to look for a new job or go back to school to train for a different career? If you are leaving your job to become a full-time stay-at-home parent, when do you plan on returning to work (if at all)?

Money In

One of the most immediate concerns when quitting your job is finding a way to cope with the loss of income. If you have savings, do you plan on dipping into that to support yourself while you look for new work?

Figure out how long your savings can sustain you if you have no other source of income. It’s imperative that you are financially secure before you quit, which might mean you need to postpone your quit date for some time.

If you are looking for a new job after you quit, allow enough time to find your next one. The standard recommendation is to allow one month of searching for a job for every $10,000 you earn.

That means if you pull in $60,000 a year, you can expect to look for an average of six months, in a good job market. Remember that in a tougher market, it can take longer.

If your partner works, the big question becomes, can you both live on one source of income? Some couples find that is possible to do so, as long as the one partner earns significantly more than the other.

Switching to a single source of income can mean you need to adjust your spending habits, though, and pay more attention to your budget.

The B-Word

Review your budget before quitting your job so that you know how the switch to one income or to living on your savings will work. Although the goal is to maintain your standard of living, you might have to make some sacrifices when you quit your job.

But, if you find eventually find a career that you love, those sacrifices will pay off in the end and you’ll be back to your old standard of living soon enough.

Get Properly Insured

Insurance is a big issue when you quit work. Don’t leave your current job until you have a plan for replacing your health insurance, if offered by your employer.

Changing your health insurance plan might be as easy as joining the plan offered by your partner’s work. But if you don’t have a partner or your partner doesn’t have health insurance through his or her employer, you’ll need to weigh your options carefully.

Review several private insurance policies so that you end up with one that meets your needs without busting your budget.

Retirement Replacement

Depending on your situation, you might need to find a new home for your retirement savings. Figure out the best solution for your 401(k) before you leave your job and be proactive about any rollovers.

You don’t want to have to deal with the hassle and penalties of having your 401(k) automatically cashed out by your former employer.

Do you plan on contributing to your retirement plan while not working? If you are married, you can contribute to an IRA in your own name, as long as your spouse has earned income. If you aren’t married, you don’t have that option.

But, if you planned in advance and saved sufficiently, you may have enough in your retirement account to make up for any time you aren’t contributing.

Voluntarily leaving a job should never be a snap decision. Even if you are very unhappy at work, take the time to carefully plan your finances before your exit. You don’t want to quit your job only to end up finding a new job you like even less.

Kelly Anderson is a financial planner who blogs about financial advice you can use in your everyday life. Connect with her on Twitter, Facebook and Google+.