Leaving Your Job? Get Your Finances Squared Away

Thinking about leaving your job? You’re not alone. In November 2021, the nation’s quit rate reached an all-time high. Citing low pay, lack of advancement opportunities, and workplace disrespect, American workers incited what is now known as the Great Resignation. This movement, sparked largely by the fallout of the COVID-19 pandemic, had workers thinking differently about not only the company they worked for but the type of work they were doing. 

In March 2o22 alone, more than 4.5 million workers handed in their resignation proving the Great Resignation is far from over. If you’re thinking about leaving your job or your industry altogether, it’s important to consider these financial matters early on in your decision process.  

Save Up for Living Expenses

Whether you plan to take time for personal matters or you intend to hit the ground running in search of a new career path, saving between six months to a year’s worth of living expenses can help get you through this period. 

How can you start ticking away at bulking up your savings? First, start by understanding where your money is going each month. Tracking your expenses and determining where you spend the most money can help you scale back on unnecessary purchases. 

Budgeting and money management apps, like Mint or YNAB, offer user-friendly interfaces that categorize your purchases into buckets, like food & beverage, entertainment, and utilities, so that you have complete visibility into where your dollars are spent. 

Creating a streamlined budget is one way to help build up your savings. If you’re finding much of your monthly income is spent on food and beverage, consider cooking more meals at home or if your streaming bills have gotten out of control, downgrade to only your most-watched memberships. Scaling back now allows you to better prepare for the future before leaving your job.

Pay Down Deep Debt

Before submitting your resignation take inventory of all outstanding debt, like mortgage, car loan, and credit card payments. Paying down your debt while also bulking up your savings can be challenging, but not impossible. If you’re looking to pay off or scale down your debt, a strategy many have implemented is the “snowball method”. In this strategy you pay off your smallest debts in full first, then roll the amount used to pay your first debt into the next smallest debt, and so on. 

Even if you can’t dedicate much more to your monthly payment, paying just a small amount extra each month pays in dividends. You’ll pay off your loans faster and have more to allocate towards savings. 

Roll-Over Retirement Accounts

When offboarding with your employer one of the most important, and often most forgotten about, considerations is the company-sponsored 401(k). If you’ve been participating in your employer’s 401(k), there are several options for rolling over your investments.  

If you’ve already secured a new job (congrats!) you have the option of rolling over any money from your existing 401(k) into your new employer’s plan, so long as they offer that as an employee benefit. If your new employer does not offer this benefit or if you have not yet secured a new gig, you may also roll over your dollars into an IRA. 

Researching the different types of retirement accounts and their contribution and income limits can be somewhat confusing. Partnering with a financial advisor for financial planning and retirement guidance can be an asset during this transition period. 

Before leaving your job, be sure to pull your most recent financial summary from the 401(k) plan holder, review and update beneficiary designation, and securely record all login information. 

Plan for Health Coverage

Since health insurance is typically taken out of your paycheck each week, it’s easy to forget the large financial burden of healthcare coverage. Most employers broker deep discounts to cover employees health care costs, so the shocking sticker price of health, vision, and dental plans can sometimes sway employees to stick it out or secure a new job before leaving their current employer. 

Depending on where your career journey has taken you, you have a few options. First, if you participate in a flexible spending account, wellness reimbursement program, or paid time off that cannot be cashed out upon termination, now is the time to use it before you lose it. For flexible spending accounts most need to be used before you leave your current job and can be used to pay for the cost of things like deductibles, prescriptions, contact lenses, or chiropractor visits. On the other hand, health savings accounts (HSA) do not expire along with your employment. You have the right to use that money following the termination of your business relationship. 

Once you’ve used up everything available to you with your current employer, it’s time to investigate future healthcare coverage. Don’t be fooled by the name, COBRA isn’t a type of insurance or insurance provider, it’s actually an act that gives workers and their families the right to continue health benefits with their current health plan provider for a specific duration, typically 18 months. 

COBRA is known to be expensive, as you’re paying your share of your employer’s plan, so it’s beneficial to opt for a plan that’s more budget conscious while still giving you the desired health coverage. Look for open enrollment through the HealthCare.gov initiative or compare plans that fit your network requirements through a helpful lookup tool like eHealth. 

Consider New Income Streams

If you are at a career crossroads, now may be the perfect time to consider new income streams. Diversifying your time to bring in additional income can help supplement your main income stream while transitioning. 

Stay connected with your industry by freelancing on a per-task or per-service basis. Or, if you’re looking to further an area of interest, like photography or cosmetology, consider connecting with a local vendor to intern or assist while developing your skills. 

Companies like Uber and Grubhub are also ideal ways to bring in extra income both before leaving your job to help bulk up your savings and following departure to help soften the financial fallout. 

This is a big move with expected change, so be sure to think through the benefits and offerings in your current role, like bonus dates, relocation expense commitments, and vacation payout, before leaving your job. You’ll also want a better handle on your current expenses and come to terms with a slightly different lifestyle in the interim. If the concern of finances is holding you back from making a career change, consider speaking with a financial advisor who can help organize and simplify the financial planning process. Connect with a Prudent Investors advisor to get started. 

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