How to prepare financially to quit your job?

This is a good time to be a job seeker, but make sure you leave for the right reasons.

“The grass isn’t necessarily greener,” says Tami Simon, head of consulting at employee benefits company Segal. “Take the time to really think about what your own motivations are and the real reason you’re thinking of leaving your job instead of just following the trend.”

If you’re looking to leave because you’re looking for more flexibility, money, responsibility, or you want to learn new skills, now is the time to ask your current employer.

“We have seen organizations learn to be agile and agile in a variety of ways, certainly with their workforces,” says Simon. “If you’ve been wanting to pursue a new direction in your career and are thinking about going back to school, chances are your employer will be interested in helping you with that and maybe even helping your financial support it.”

Reaching out to a mentor or sponsor to discuss a possible change can also help provide some insight and clarity about the decision.

“Talk to your trusted advisors, people you can really count on to stand by you and give you an honesty you might not have identified yourself with,” says Simon.

Timing is everything

Do you remember all the paperwork you get at the beginning of your job? It may include information about any potential financial effects of quitting.

Simon suggests that you review your original job offer, compensation agreements, and employee handbook before you announce your departure. “What are you contractually bound to?”

Benefits are sometimes awarded based on how long you’ve worked with an employer, and offers may also include terms of not competing or withdrawing signing bonuses or other incentives if you refuse. prior to a certain period of time.

For example, you can expect a large payout for unused accrued paid leave, but according to Simon, the laws are different as to whether it has to be paid in full.

“You shouldn’t assume that if you give two weeks’ notice and you have two weeks of vacation that you can spend [it] sitting on the beach. Make sure you have a look at how the organization is structured. ”

Quitting can also potentially lose the bonus.

“We are approaching the end of the year, and there could be year-end bonuses or incentives,” said Kristen Carlisle, general manager of Betterment 401(k). “While it’s tempting to make changes as quickly as possible… think of it as part of your total pay and something that can help you as you transition away from your job. me.”

Evaluate your budget

Job seekers are dominating right now, but it’s hard to know how long that will last.

“You have to consider the worst case scenario,” says Barrow. “For six to nine months after you’ve taken some time off, you don’t know what that job market is going to be like.”

Before leaving the payroll, create a budget detailing your monthly cash inflows and expenses. List all of your non-discretionary living expenses, including housing, transportation, groceries, taxes, utility bills, and any debts that still need to be covered without a paycheck.

Carlisle recommends saving at least three to six months of living expenses in addition to your regular checking, savings, and retirement accounts. Barrow recommends having 12 to 24 months of living expenses on hand.

“You really need to have a really strong cash reserve before you take the leap,” says Barrow. “While you’re not working… your refrigerator may need to be replaced, or [you may] car repair or major dental expenses. “

And if you plan to spend this time on costly endeavors like traveling through Europe, Barrow recommends saving for it in addition to your emergency fund.

She also suggests assessing any debt — especially credit card debt. “You need to try to solve that problem and get rid of it before you leave your job. What you don’t want to do is know that you have to choose between: ‘Do I pay the mortgage or I pay the credit?’ card application?’ You want to get rid of some unsecured debt possibly at a higher interest rate.”

Benefits: What are you giving up?

Quitting a job can also mean giving up other benefits, including health insurance.

“Most employees are aware that their employer offers health insurance benefits, but they don’t necessarily always realize how much their employer subsidizes,” says Simon. .

“Employers will sometimes subsidize COBRA costs, but most do not,” says Simon. “And employers are allowed to charge up to 102% of the premium that applies to COBRA.”

She added that employers are required to provide a COBRA notice detailing your rights and responsibilities, including the cost of insurance.

“[Health care] It’s a lot more expensive than people expect, says Barrow.

What about retirement savings?

If you have a 401(k) at your soon-to-be former employer, you’ll have to make a decision about what to do with it.

You have a few potential options: You can leave it in your current employer’s plan if allowed, but you won’t be able to contribute further. Or you can include it in your new employer’s plan once you find a job.

You can also roll your 401(k) into an individual retirement account (IRA).

“Consider contributing to an IRA while you’re working,” says Carlisle. “Save as much as you can for retirement, it sets you up for success in the long run.”

She adds that you should make sure you’re transferring money to an eligible account so it won’t be affected by the fees.

Try to avoid hitting the 401(k) threshold early. “A lot of people see that 401(k) as a potential discount fund…it’s not a good choice for most non-retirees,” said Mr. Barrow.

You should also check to see if there are any dates associated with your retirement plan.

Mr Barrow said: “Do you have a pension that you’re leaving on the table or are you not getting your 401(k) full?” “Those are the things you also need to consider before you pull the trigger and leave.