5 Things You Must Do Before You Quit Your Job

By Carrie Smith on 1 May 2015 0 comments

Making the decision to quit your job is both scary and exhilarating. Many of us dream of quitting our jobs to have more freedom, greater earning potential, and fmore lexibility with our schedules. As you go from dream to reality, there are certain steps to take to make sure you're prepared before the big leap.

Of course, money in the bank is vital to making a smooth transition, but there are several other critical financial concerns. Here are five important things to do before quitting.

1. Calculate Your Bare Essentials Budget

What is your total budget for all of your household expenses? What portion of this is made up of the essentials like housing, insurance, food, gas, and utilities? Calculate this "bare essentials" budget, omitting discretionary things like dining out, travel, or entertainment.

Your bare essentials budget is important to calculate in the event you have low or no-income months. You'll be able to prioritize the important bills be paid first, leaving less essential expenses to be paid last. During months where you have more income than normal, you can use the extra funds to allocate to less important expenses.

2. Build Up a Savings Cushion

Based on the minimum amount of money you need to make each month to cover your bare essentials expenses, your next step is to stash away a cushion of savings. At the very least, you want to make sure you have enough saved up for six months worth of essential expenses.

Anything you save up in excess of this amount is gravy, and can be used to help jumpstart your new career, or as a backup/emergency savings plan. When I quit my full-time accounting job to start a freelance business, I was only able to save up four months worth of expenses in a savings account. We had some unexpected medical emergencies, so I wasn't able to save up as much as I would have liked. But since I knew what my bare essentials budget figure was, I was able to make ends meet until my new business took off.

3. Create a Viable Income Plan

Now that you know how much you need to save, how are you going to bring in enough money to cover the bills and create a savings cushion? Before giving up a steady paycheck, you must first craft a plan for replacing this income.

Do you have another job lined up? Are you planning to freelance and work with clients (or a combination of both)? What happens if this plan doesn't work? How will your budget survive during months when you don't have regular money coming in?

These are all important questions that need answers before you can confidently quit your job. Create a "quitting your job" plan and prepare for additional variables in the event that you're forced to change plans.

4. Research Health Care Options

Since health insurance coverage is now mandated by federal law, you'll likely face a tax penalty if you let your current coverage lapse. Whether you become self-employed or find a part-time job, you'll need to research the best options available for health care.

A good place to start is by chatting with your current health insurance company, or by comparing plans on the federal marketplace or a third-party site like eHealthInsurance. Make sure to explain your new choice of employment, as this will have a big impact on what your monthly premium and health insurance coverage will be.

5. Rollover Your Retirement Account

If you've been contributing to a 401(k) plan through your current employer, you will no longer be able to do this when you quit. But this is money you earned throughout your career, so it's rightfully yours. Make sure you rollover your retirement accounts to a new individually-managed service.

Seek out a financial advisor, or chat with your current HR department so you're educated on what options are available. Generally speaking, whatever type of employer-funded account you have will have to be rolled over into a different retirement account, unless you plan to move to another job that offers employer-funded retirement accounts.

Once you've taken these simple steps to prepare for quitting, you'll be able to move forward with confidence, knowing that you have a solid plan in place.

Are you in the process of quitting your job? What are some other concerns to prepare for?

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You don't HAVE to rollover your retirement account. If your previous employer has good low-cost investment options, most employers allow you to leave your balance there. It's still your money, but if you don't want to move it to an IRA you don't have to.