You may have noticed a lot of people are quitting their jobs these days. And maybe that inspired some serious soul-searching and an urge to make a change yourself.
The pandemic fundamentally changed how people think about work, free time, and going to an office every day. And as a result, burned out employees are ditching their 9 to 5 for greener pastures—whether that be for a new job, a solo-endeavor, or a long overdue break from the workforce.
The idea of quitting your job can be liberating, but if you’re like most people, you still have bills to pay each month—which is definitely a challenge without a regular paycheck coming in. By proactively getting your finances in order before you quit, you’ll be relaxed and ready when the time comes to turn in your notice.
Whether you’re planning an open-ended sabbatical, going freelance, or taking a break while you look for a new job, consider these five steps to get financially ready to resign.
Unless you have another income source or a big stash of cash, you’ll likely need to start saving long before you give notice.
If you already have some money in an emergency savings fund, you’re ahead of the game. Financial experts suggest having anywhere from one month to a year’s worth of living expenses in an emergency fund—and that’s when you do have a job. In an ideal world, you want to save at least enough to cover your anticipated expenses, as well as a buffer for unexpected costs (like car trouble or unexpected home maintenance).
As you get ready to give notice, set your savings target based on how much time you plan to take off and your typical cost of living. In addition to expenses like housing, food, and transportation, remember to research health insurance and other perks your employer currently takes care of.
Nothing hinders a great resignation plan like a bunch of credit card bills. You can’t put those payments on hold while your income is on hiatus, so your best bet is to pay all your cards off before you quit. If you’ll still have money coming in, a fixed rate personal loan can help you consolidate credit card debt. And you may be able to lower the interest rate and save money, too.1
If you’re among the millions with student loans, you may be able to pause payments using deferment or forbearance. But keep in mind that may mean you’re still accruing interest, even though you’re not making payments.
It sounds simple, but changing your spending habits is probably the most powerful thing you can do to set your finances up for a sabbatical. Not only will you reach your savings goal faster, but you’ll also learn to live on less—which can have lifelong benefits, long after you’ve found your dream job.
Start by tracking your spending to get a feel for where you can make cuts. Even the most budget-savvy might find they’ve been slipping in the era of delivery and subscription services.
Take food for example. For years, the prevailing personal finance wisdom was to save money by cooking at home. And that’s still the case. But with the proliferation of grocery delivery services, that advice needs some updating. Delivery services often charge more than what you’d pay in the store, especially at grocers that offer club memberships for discounts. And while no one’s saying you have to get onboard with the couponing craze, you can count it as an added perk to shopping in person.
Gas, insurance, and car maintenance can also take a big chunk of your budget each month. And though these may seem like non-negotiable line items in your budget, even a few alternative transit trips—like biking, walking, or taking a bus—each month can equal savings. If driving less isn’t an option, consider shopping around for lower car insurance rates to make a dent in your driving expenses.
And of course, don’t forget to comb through your credit or debit card statement to identify recurring expenses that can be cut, like that streaming service you downloaded once and never used again. For the subscriptions that feel necessary, look for ways to get a better deal.
Quitting your job with no income on the horizon is a scary prospect, but a side hustle can help soften the blow. With the rise of the gig economy, there are numerous ways to make some extra cash with minimal training or expertise. Do some research to find potential gigs that will fit your lifestyle and actually pay.
You might also use this time to hone your freelancing skills—for example, building a portfolio you can use to sell your graphic design or photography services to potential clients. Knowing that you have the ability to make extra cash in a crunch can help increase your confidence about the decision to quit.
If you have a 401(k) or other employer-sponsored retirement plan, now’s a good time to check on it. Most people set-and-forget their retirement account contributions, so it may have been a while since you last saw your balance or investments (or even where the account is custodied). Track down all the info now so that you’re ready for a conversion with HR when it comes time to quit.
Some employers will let you keep your account with their plan even after you leave, and whether they do or not, you may choose to roll it over into an IRA. Whatever you decide, just don’t forget it’s there. A recent study found that there are an estimated 24.3 million “forgotten” 401(k)s representing $1.35 trillion in assets. Even if your account is small, it’s worth keeping given the potential for compound interest and returns.
If you’ve already made the choice to quit your job, adding these steps can feel like postponing the big event. But by taking the time to get your finances in order, you’ll have more peace of mind—which means you’ll relish that resignation even more.
1 Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.