5 ways to prepare financially before you quit your job

14 Ways to Prepare Financially Before You Quit Your Job

Leaving a job is a major decision that comes with plenty of uncertainties. Whether you’re considering a career shift, taking a break to explore new opportunities, or making a fresh start in a different field, it’s important to feel financially secure before making a move. Without a plan, you might find yourself scrambling to cover day-to-day expenses or feeling forced to take the next available role just to stay afloat.

Taking time to reflect on how your financial situation could change during this transition is key. Are there adjustments you can make to your budget, or savings you can bolster to reduce stress during the change? Assessing your financial position now will help you move forward with greater confidence and reduce the risk of unexpected setbacks along the way.

Many people don’t have the luxury financially to quit a job they’re unhappy with without a strong financial footing. If you find yourself in a position where you would like to find your next career move, here are 14 ways to prep your finances before you quit your job.

1. Find another job

The best way to make a job transition less stressful is to already have another job lined up. It is best practice to secure your next job before leaving your current job. That will reduce the financial impact.

Beyond finding a new job, think about starting side hustles or offering freelance services that align with your skills. This can add a layer of financial security and serve as a way to explore different career paths without rushing into a new full-time role. Testing out these opportunities now can also help you see if they could become long-term options.

2. Take a hard look at your emergency fund or cash reserves

Make sure you have enough cash to fund living expenses for three to six months. If your cash reserves are low, consider stopping any monthly savings you are doing to build the cash up. This is one of the few times we recommend reducing savings.

Additionally, consider selling items you no longer use or need, such as extra furniture, tech gadgets, or even a second vehicle. These sales can generate quick cash to strengthen (or protect) your emergency fund.

3. During the transition, try to avoid pulling money out of retirement accounts before age 59.5, which can result in a 10% penalty plus taxes.

Having liquidity and access to cash during a job transition is very important. Make sure you have a game plan. Instead of pulling funds from your retirement accounts, you might want to look into liquidating non-retirement investments like brokerage accounts or mutual funds. 

These types of accounts typically don’t carry penalties for early withdrawals and can be tapped into to cover short-term needs. If those aren’t an option, it may be helpful to establish a personal line of credit with your bank to access funds without impacting your retirement.

4. Take advantage of all your employee benefits before you leave

Make all those health care appointments with your in-network doctors. If you have a flexible spending account or FSA, make sure you review the rules. It is oftentimes advantageous to use the funds before you leave employment.

Beyond health care benefits, review any additional perks that might slip under the radar, like gym memberships, wellness programs, or educational reimbursements. Some companies offer these resources until your last day of employment, so take full advantage. 

5. Review your employer’s policy for vacation days and sick days

It is important to understand what days you will get paid for if you leave. If your company compensates you for unused leave days or offers bonuses, make sure you know what you’re entitled to. This can be a meaningful financial boost. Some companies require specific criteria to be met for these payouts, so take the time to review your employer’s policies and maximize what you can take away as you transition.

6. Update Your Health Insurance

After leaving your employer, health coverage may become an immediate concern. Consider enrolling in COBRA to continue your existing health plan or exploring options in the health insurance marketplace. This can keep you protected in case of unexpected medical expenses while you’re transitioning.

You may also decide to hop on your spouse’s or partner’s health plan, if applicable. Be mindful of any enrollment deadlines to avoid lapses in coverage, and calculate how much these new premiums and out-of-pocket costs will impact your budget.

7. Evaluate Your Career and Life Goals

Leaving a job gives you the chance to reconsider your long-term career and personal objectives. It’s a great time to think about what matters most to you—whether it’s pursuing a new role in a different field, starting a business, or spending more time on personal projects. By clarifying your priorities, you can create a roadmap that guides you toward fulfilling your goals.

If a career change is on the horizon, investigate any skills, training, or certifications you might need to make the switch. Doing this groundwork while still employed can ease your transition and help you enter your new role with confidence.

8. Consider Downsizing Your Lifestyle

During a period of reduced income, cutting back on certain expenses can ease the strain on your finances. Downsizing doesn’t have to mean sacrificing comfort—it could involve finding smaller, more affordable housing or eliminating unnecessary recurring expenses like subscriptions or memberships. These adjustments can give you more flexibility as you manage your money.

Strategic downsizing is about making decisions that allow your savings to last longer. It’s a temporary solution that helps you focus on your goals without feeling overwhelmed by financial pressure.

9. Build a Support Network

Preparing financially is only part of the equation. Having a network of supportive people around you can make a huge difference. Connect with people in your network—mentors, former coworkers, or trusted friends—who might provide helpful insights or point you toward new career paths. Attending industry events and engaging with professional organizations are great ways to expand your circle.

Remember that personal connections are equally important. Discussing your plans openly with supportive family members or close friends can create a solid base of encouragement and give you practical help when you need it. Whether it’s an encouraging word or a temporary place to stay, having a support system can make your transition much smoother.

10. Plan for Unexpected Costs

Even with a solid financial plan, unexpected expenses can arise during a job transition. These might include relocation costs, unexpected healthcare expenses, or fees related to continuing education or professional certifications. Planning for these unanticipated expenses can prevent you from dipping into your primary savings or retirement accounts. 

Additionally, factor in any costs related to job hunting itself. For example, you may need to pay for new professional attire, travel for interviews, or upgrade your home office if you’re considering remote positions. Keeping these expenses in mind can help you stay financially prepared without straining your primary budget.

11. Strategize How to Maximize Your Severance Package

If your employer offers a severance package, make sure to understand all its terms. It could include salary continuation, health benefits, or vacation payouts. Determine how long these funds will sustain you, and think about whether you need to supplement it with additional sources of income. In some instances, negotiating a better severance package is possible, especially if you’ve been a long-term employee or have a specialized role.

Use your severance package strategically—allocate it toward critical costs like health insurance premiums, rent or mortgage payments, or any career development expenses. By being intentional with these funds, you can ease your transition and avoid burning through your savings too quickly.

12. Consider Taking on Temporary or Gig Work

If your emergency savings are lower than you’d like or you want more financial flexibility, temporary work or gig opportunities might be the right choice. Websites like Upwork, Fiverr, and TaskRabbit offer part-time or freelance gigs that don’t require long-term commitments but can generate supplemental income.

These short-term roles can also keep your skills sharp and fill gaps in your resume while you look for a full-time position that suits your long-term goals. Just be mindful of how much time these gigs consume to ensure they don’t hinder your primary job search efforts.

13. Prepare for the Emotional Impact of Leaving

Leaving a job, especially one you’ve held for a long time, can be an emotional experience. It’s not uncommon to feel a mix of excitement, anxiety, and even loss as you prepare to leave behind familiar routines and relationships. The psychological impact of this change can be significant, especially if your identity and sense of purpose have been closely tied to your job. Recognize that these emotions are normal, and be patient with yourself as you navigate this new chapter.

Prepare for potential feelings of uncertainty or guilt, especially if your departure affects colleagues or disrupts projects you’ve been involved in. Having a support system in place can make all the difference. Consider working with a career coach or mentor who can provide guidance and reassurance. A professional can help you focus on your strengths and reframe your thinking during times of self-doubt. 

Connecting with others who have gone through similar changes can be beneficial, as they can offer valuable insights, share coping strategies, and provide encouragement based on their own experiences.

14. Create a Vision for Your Post-Employment Life

Leaving a job provides the opportunity to reimagine what your life could look like moving forward. Take time to map out what you want your daily routine, career, and personal life to be after you leave. Will you pursue a new job immediately, take time off, or perhaps start a business? Crafting a vision for what you want to achieve provides a framework for your financial decisions and keeps you centered on what truly matters. 

Your plan doesn’t need to be overly detailed—start with your top priorities and break them down into a few smaller, actionable goals. Jot down your main objectives, both immediate and long-term, and consider a loose timeline for each. Setting these markers can create a sense of purpose, giving you direction and clarity as you navigate the uncertainties ahead. 

One more consideration is creating a comprehensive financial plan that outlines how you’ll manage cash flow, debt payments, and investments if you choose to leave your job. A financial plan serves as a blueprint for your financial security, whether you’re transitioning careers, starting a business, or taking time off to pursue personal goals. Evaluating your living expenses and understanding what changes may need to be made can provide greater peace of mind during a time of uncertainty.

Whether you’re joining many others in quitting your job for good, or simply re-evaluating your professional options, having a clear, organized approach can set you up for success. From managing credit card debt to understanding how to roll over your employer-sponsored benefits, a well-thought-out financial strategy is essential.

Let Us Help You Prepare Financially Before You Quit Your Job

Taking the time to evaluate your financial standing now can set the stage for a more seamless transition. Understanding your cash flow, identifying potential gaps, and adjusting your budget accordingly can alleviate stress during this period. 

It’s also a good idea to consider how long your savings will last without a steady paycheck, and whether alternative sources of income, such as freelance work or part-time opportunities, could help supplement your finances. A clear picture of your financial health enables you to make informed decisions, giving you more flexibility and control as you take the next steps in your career journey.

If you’re thinking of taking the leap to a new career soon, or you want to quit and don’t have the next step in mind, it’s the perfect time to examine your finances. Reviewing your financial situation can help you prepare for unexpected challenges, should they arise.

Contact our financial advisors if you need help creating a comprehensive financial plan. We use The Lifetime Financial Solution™ to provide financial planning for our clients. This is a comprehensive system designed to guide us as we work together to help you achieve your life goals.

Editors Note: This article was originally publishing in [March 2023]. It has been updated to provide more comprehensive and up-to-date information.

Clayton Quamme, CFP – Partner, Financial Advisor
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