Whether you’re itching to change careers or hoping to become your own boss, leaving the security of a steady paycheck is far less frightening when you take the time to get your finances in order. Here are five important questions to consider before you jump ship from your main gig.
1. What needs to change to forge a new path?
It may seem like the grass will be greener in a new job, but consider what you want from your next venture—before you start cleaning out your desk.
If your future plans will impact your income significantly, think about how you currently perceive and prioritize “wants” from “needs”—and whether you’re willing to potentially adjust your financial attitudes to make your future career dreams reality. Though money isn’t the key to professional happiness, your spending and saving habits (and desire to adjust them as needed) does have bearing on the opportunities and risks you can afford to pursue.
2. What do you need to cover basic living expenses?
When you’ve had a steady source of income for some time, you may take a consistent paycheck and the security it provides for granted. If your job change will impact the reliability or amount of your income, figure out how much money you need to save before you leave the security of a full time job, to be certain you can pay for your monthly living expenses during the transition.
Though the details of your job change and future plans impact the amount of money you’ll need to accumulate before you leave your job, financial experts at NerdWallet recommend having at least six months of living expenses set aside when your income is stable. If you intend to leave your job before you find a new one or plan to be your own boss, save at a year’s worth of living expenses before you bid your current gig adieu. 1
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3. How will you handle health insurance?
If your current employer pays for a portion of your insurance and benefits coverage, consider how much you’ll have to pay for coverage once you leave. Though you may be eligible to continue your existing health insurance plan through COBRA 2, monthly premiums tend to be far more expensive than those under an employer plan. 3
In addition to basic healthcare insurance, leaving your job may mean the loss of short and long-term disability, and life insurance coverage. Research your options for securing the coverage you want to purchase on your own before you send your resignation letter, so you can arrive at an accurate monthly budget.
4. What are the details of your employer’s retirement plans?
Employer-sponsored retirement plans (and the policies associated with them) vary. Clarify what you’re entitled to—and what you may walk away from– before you decide to quit. If your employer offers a match with a “vesting schedule” that specifies you must work for a certain number of years to be “fully vested” (and you haven’t reached that milestone), you may lose the money they contributed. (The money that you put into the account from your paycheck will remain). 3
Some employers may require that pension plans stay under their management until current and former employees reach retirement age, or the age specified in the plan. 3
If you have a 401(k) plan and you’re happy with the financial institution your soon-to -be former employer uses, they may allow you to leave the funds as is, or you may roll the funds over into a traditional IRA managed by the financial institution you choose.
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5. Do you have a major purchase planned in the near future?
If your short-term plans include renting a new place, buying or refinancing a home, or buying a new car that you’ll finance, you may have an easier time checking those tasks off your list before you leave your full time job. Many lenders consider the length of time you’ve spent with an employer and your monthly income (documented by recent paycheck stubs) as part of their decision to approve a borrower, regardless of how positive your credit report, or how much money you have saved.