While it can be tempting to walk away from an unfulfilling gig without a plan, doing so comes with its own set of stressors. That’s why it’s crucial to take a look at your financial health first.
We spoke to several experts to find out the best way to do this as you navigate a job or career change. Read on to fine tune your exit strategy before you fire off that resignation email.
For the short term
While your first concern may be paying your immediate bills if you leave your job without another one lined up, there’s even more to consider before making a major move, Isabel Barrow, director of financial planning for Edelman Financial Engines, told Yahoo Money.
“You’ll need to think about three categories of your finances: debt, cash flow, and expenses,” she said. “You should have 24 months of monthly expenses saved before leaving a job. Three to six months is undercutting it. As a whole, we need to revisit [that advice]. You have to look at all the worst-case scenarios, unfortunately.”.
Instead of building up a cash reserve, Stephen Molyneaux, founder and CIO at Hanover Advisors, also suggested turning to your investments or opening a line of credit if your nest egg is not where you’d like it to be.
“You can borrow money from your retirement savings to carry you for a while,” Molyneaux told Yahoo Money. “It’s not a bad thing. Also, get a line of credit. If you are self-disciplined and pay it off quickly, taking one is not the end of the world, especially if you can get a low interest rate.”
If you’re considering any of these options, it’s a good idea to talk it through with a financial advisor first (and if you don’t have one, get one!).
For the intermediate term
Once these issues are addressed, Barrow said it’s time to consider how the choice will affect your finances in the next year and take necessary precautions.
“If you haven’t refinanced and you own a home, do it before you leave the job,” she said. “If you are buying a car you’ll want to do that first too, as you will not qualify for these loans if you are unemployed. And medical visits should also be done before you leave. If you anticipate other expenses upcoming outside of your regular living, you may want to consider pulling back on your investments temporarily.”
As far as benefits go, Molyneaux said it’s worthwhile to speak with human resources at your current job to find out what options are available if you leave.
“Sometimes those can be extended and you can continue to get coverage if you pay out of pocket,” he said. “Some people make the assumption that leaving means no benefits. You might be able to get a better deal if you stay enrolled as opposed to going out on your own and replacing them. Be aware of the additional benefits above and beyond retirement plans, too.”
For the long term
If you decide to leave, be mindful that you’ll need to decide what to do with your 401(k). It’s shocking how much money employees leave behind in forgotten retirement accounts — Nearly $1.4 trillion, to be exact!
“Make sure when you are leaving a job to take your retirement plan with you or keep up with the one established by your former employer,” Molyneaux said.
And speaking of planning for the future, Barrow brought up a crucial point: How leaving your job now could mean working past your ideal retirement age.
“One of the things that get lost in the consideration here is how much of your retirement savings you may miss out on if you are out of work,” she said. “You could be pushing it back two or three years. And if your job offers a pension or retirement benefits, you could be losing out on those as well.”
Last, Barrow reinforced that pausing and thinking through your plan is crucial.
“I hear from people that they are so fed up with the lack of work/life balance, they can’t do it anymore,” she said. “One conflict with a boss and it causes you to want to go for that nuclear option. Instead, take a vacation, take a mental health day. Bring it back to the simple, the rational. Write down the pros and the cons. Get the math done, on your own and with someone. Know what you’re dealing with in terms of trade-offs.”