Don’t Quit Your Job Without Making These 5 Financial Moves

by Melanie Lockert · 10 comments

Quitting your job is a decision that shouldn’t be taken lightly. It’s a big risk to leave the certainty of a consistent paycheck, for the uncertainty of the unknown. But quitting your job to start a business, stay at home with the kids, or salvage your health can be such a rewarding experience.

I know just how scary and rewarding quitting can be. I quit my job some time ago to be a full-time freelance writer, and it felt absolutely crazy at the time. I have gone through all the ups and downs – paralyzing fear and insecurity, jam packed months, losing clients, and more.

It’s a roller coaster for sure. But there are ways to lessen the financial risk of quitting your job by making swift and calculated actions for your future.

Here are five financial moves to make before taking the leap.

1. Chat With a Financial Advisor

Before you make the bold move of quitting your job, you need to have a chat with a financial advisor. Even if it’s just a brief consultation, they can make you aware of things you may not know that could potentially derail your future plans.

They can put you on the right path by reviewing your budget and see where there are any leaks. Is something in your budget that you know you won’t be able to afford once you quit? Can you lower your food or entertainment budget? Living on less now will make the transition less jarring.

A financial advisor will help figure out what your bare bones budget is. In other words, you’ll know what you need to survive each month. Knowing your bare bones budget can help you prepare your emergency fund and also give you a keen understanding of what you need to be bringing in.

2. Build an Emergency Fund

I know, I know. Nearly everyone in personal finance suggests that you need an emergency fund before quitting. But it’s true! It’s not a matter of if an emergency will happen but when.

Some experts recommend that people in debt should have at least $1,000 in an emergency fund, while the general consensus seems to be that having three to six months’ worth of expenses is a good buffer. But what if you’re quitting?

The answer is: the bigger the better. If you can save up a size months’ worth of expenses, great. Are you able to save a year’s worth (or more)? Even better! You’ll be able to relax and not rush into something or make hasty decisions. You have to remember why you’re quitting your job and be able to cushion yourself financially.

If there is one thing I have found, the amount you have saved is very personal, and is something your financial advisor can help you figure out. I saved up three months’ worth of expenses as I am currently in debt but also fairly low-risk – I don’t have kids, a house, a pet, or a car. I also have regular clients and am willing/able to hustle when need be.

In theory, it would be nice to have more, but I feel my money is well spent on repaying debt instead of keeping it in an emergency fund. Whatever you do, make sure it feels right for you and that you can sleep at night.

For me, going below three months’ of expenses starts to feel a bit like the danger zone. So remember, it’s up to you, but the more you have saved the better.

3. Plan to Rollover Your 401K

While you may be ready to run for the hills and leave your job, don’t leave everything behind – especially your money! If you contributed to a 401K at your job, then make plans to rollover it over to a new account.

You can roll it over to a traditional Individual Retirement Account (IRA) or to a new employer’s 401K. If your plan is to quit then start your own business, you can open up a SEP-IRA, Individual 401k, or a Roth IRA.

According to the IRS;

“A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP.”

Meanwhile, you may be able to sock away even more with an individual 401k. A Roth IRA is a great investment option too, because you’re contributing after-tax dollars, which means you won’t owe the government anything when you withdraw the funds at retirement age. It’s important you continue to fund your future after quitting your job. While your present may be uncertain, you will want to contribute to your medium and long-term goals — even it’s only a little bit.

You will no longer be receiving a company match, and you’re responsible to pay your own Social Security and Medicare taxes. When you start your business, your retirement is entirely your own responsibility now.

4. Research Health Insurance Options

After finding a good financial advisor, your next important step is to start researching health insurance options ahead of time. Employers typically pay a good portion, if not all of their employees’ health insurance, so once you jump ship you’ll be on your own.

You’ll want to research now to assess what your health insurance premiums will cost you. Depending on your situation, you could be in for a steep bill. I was able to easily find health insurance on the exchange without much hassle, but your mileage may vary so it’s important to figure out the specifics ahead of time.

It’s amazing though how many solopreneurs I have met who are fearful of quitting their job because of the health insurance aspect. While it is a process to find a plan on your own, it’s not so difficult that it should deter you from quitting your job to pursue your dreams.

5. Pay Bills in Advance

One great way to financially prepare for quitting is paying bills in advance. If you are able to pay your rent or mortgage, utilities, insurance, etc. in advance, you’ll be in a solid position after you quit. The main thing people need to worry about when quitting is their cash flow.

Give yourself enough cushion to pay bills late, or keep your cash flow solid, by paying your expenses in advance. Your bank account will thank you later.

You don’t want to wonder if you will be able to make it to the end of the month, so consider putting extra money towards your bills while you are still gainfully employed.

The Bottom Line

Quitting your job may be one of the scariest things you’ll ever do, but take these steps to mitigate the risk and give your new career path a fighting chance.

You’ll be able to be a smart spender and saver while pursuing your dreams at the same time. Prepare now, so you can have a carefree transition when you actually quit.

Are you thinking of quitting your job? What’s another vital financial move that needs to be made? 

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  • Yankeebuddy says:

    Consider any financial moves you want to make before leaving your job, such as obtaining a home equity line of credit to have for emergencies or refinancing the mortgage on your house if it makes financial sense. These are steps that would be more difficult to do once you are not working.

  • Mrs. Frugalwoods says:

    Having a robust emergency fund is crucial! Like you said, it’s not if but when an emergency will happen. I think taking into account all of the benefits of your job beyond just salary is important. As you mentioned, healthcare, 401K, and other benefits are often all part of the compensation package.

    I think it’s awesome that you were able to quit and pursue full-time freelancing!

    • Melanie says:

      Yes, emergencies do happen and you need to consider all the other benefits you are losing. Thanks for your support!

  • Neil says:

    Nice post. Was doing some research for a post I’m putting together about quitting and came across this.

    Great point about speaking to a Financial Adviser. I’m considering on doing this before I quit as I’ve worked in a few companies and have pensions in numerous places and I think there’s some benefit to consolidating it in one place.

  • James Hennings says:

    Excellent point about not leaving your money if you have contributed to a 401k at work. So many people leave their money with a previous employer it is a huge cause for concern. I have seen so many of these stories lately that I have decided to make common rollover mistakes the very first topic of my website when I launch it next month. You stated that if the reader planned on starting their own business they could open up a SEP or a Roth IRA. Great advice on recommending a Roth IRA which I believe is the best investment vehicle for anyone who isn’t wealthy yet. Unfortunately that is not accurate funds from a 401k can only be transferred into a Traditional IRA. 401k money is pre-tax dollars and can only be rolled into a pre-tax investment vehicle. Roth IRA’s are post-tax dollar investments and can only be contributed to with post-tax dollars.

  • James Hennings says:

    These tips are a good start for quitting your job. I don’t know much about those other two reasons you mentioned but quitting your job to pursue your dreams or start a business is what I’m experienced in. The majority of the time it comes down to your second point building an emergency fund. 3-6 months worth of living expenses is the rule of thumb because that is extremely hard for most people to do. Like you said building a year’s worth is ideal but it takes a special kind of individual to stay focused and disciplined long enough to build something that significant. When cash is available thoughts start creeping in about spending and that is a lot of temptation for the average person. So most individuals qualified to give financial advise use 3-6 months because it’s significant enough to make a difference and short enough to see the light at the end of the tunnel.

  • dojo says:

    Good planning can really make it work well. In my case it wasn’t planning, I just lost my job and couldn’t find anything in the ‘industry’ worked in for 10 years. So I just switched gears on my web design business and was desperate enough to make it work 😀

  • Kayla says:

    Good tips to keep in mind as I work toward quitting my FT job. Thanks Melanie!

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