How to Tell If You Can Afford to Quit Your Job

Ben Steele  | 

Planning on quitting your current job? Can you answer “yes” to these questions?

  • Do you know what your monthly expenses are?
  • Do you have enough savings to survive without income for three to six months?
  • Can you survive one month without using your credit card?

If not, you may need to plan further ahead in order to safely quit your job.

Sometimes you just have to quit. But in the current job market, it may be a few weeks (or even months) before you can slip into a new job at a different company. If there is going to be dead time between jobs, and especially if you don’t already have a job backup plan, good financial planning will make all the difference.

Quitting Your Job Requires Disciplined Financial Planning

The first thing you’ll want to do is create a personal budget with a specific focus on tracking your expenses. Remember to factor in all your outgoing finances, don’t forget automatic bill payments, and any loan payments.

Next, look for things to cut. Cut your spending as ruthlessly as possibly. You may want to experiment for a few weeks to make sure you can maintain a scaled back lifestyle while you look for the next work opportunity. Don’t strangle your budget to a point where you can’t live and eat, but meals out, entertainment subscriptions, monthly shipments, and anything non-essential may have to go. You may need to downgrade phone and internet service.

Remember that those monthly subscriptions can be the death of a thousand cuts. Five dollars for a website subscription here, $15 for a streaming service there, an extra $20 for unlimited data … Try and get those automated payments either off your back completely or reduced.

This is something I learned from nonprofit management: never completely zero out your budget. Always assign a percentage, say 10 percent, for unexpected occurrences and emergencies.

Save For Emergencies

Even if you have a job offer, things could always fall through. The job may not work out, or the hiring process might get delayed. Based on your adjusted expenses budget, you’ll want to make sure you have enough in your savings for at least two months, preferably six.

If you’re already a Fiscal Tiger, you’ve been saving an emergency fund for job loss every month as a matter of routine. If you don’t have the savings to cushion you, try to stick out until you do. Relying on savings to carry you through unemployment will have your credit screaming “ICEBERG AHEAD!”

Can You Afford Health Insurance?

If you’re going to be out of work for more than a month, you’re going to want to look into alternative health insurance options. Remember that under the ACA, if you’re without insurance for more than two months you’ll be hit with a tax penalty. Even with the future of US healthcare in flux, health insurance probably isn’t one of those budget areas you want to cut.

Make a Job Plan

The ideal transition is to have an offer on the table before you quit your job. But that isn’t always feasible. You will want to create a detailed plan to get you out of unemployment and into the right job as quickly as possible.

Shoot for the stars, of course. Create a plan around your ideal job, but think about other ways your skills are applicable, and other industries that will provide you with what you need. Spread your job hunting net wide but do it with intention. Ideally, you’ll have an idea of which positions and companies to target before you start. Check job ads carefully to make sure you’re applying for the right job and making the best use of your time.

Make a list of local networking events, check for companies hosting open houses, and hit the streets in addition to your online search. You’d be surprised by the difference a resume dropped off in person makes. Give yourself a productivity quota. Treat looking for jobs like a job. Put in a full work week at it once you’re unemployed.

Here’s what a job plan might look like:

  • A list of keywords related to your current job title, and job titles of ideal careers. You can use these to aid in your search and identify relevant postings rather than searching all jobs in an area.
  • A pre-fabricated resume template, customized for each industry and niche that you’re targeting.
  • Drafts (not templates) of cover letters that highlight different skills and experiences.
  • A day planner with reminders, your weekly application quota, networking event dates, and follow up information.

Incidentally, beware of anyone who invites you to lunch to talk about how they can help you start own business, especially if they say the words “multi-level-marketing.” They’re probably trying to pull you into a pyramid scheme. These predators often come in the guise of friends and business acquaintances and when you tell them that you’re between jobs they will smell blood in the water. Falling for one of these is a one hundred percent guaranteed way to not survive unemployment.

Lay off the Credit Cards

Credit cards can and will be useful to you when you’re unemployed. But you need to be picky about when you use them. If you just start charging everything to credit in order to keep money in your savings account, you’ll find interest and debt eating up those precious resources later on.

When you’re deciding whether to use a credit card while unemployed, take into account the importance of the expense. Is it a car payment, insurance, or loan payment? Is the money coming, just not in time? Neglecting a loan payment for a car, house, or anything else can negatively impact your credit, but if you use a credit card and can’t pay it off in time, you’ll have the same effect — plus very likely a higher interest payment.

It’s a balancing act. You’ll want to call and negotiate with a company whenever you can before using credit to pay off a balance. If you absolutely need to, some cards offer interest-free periods on balance transfers. Just remember that the reason they do that is to make money off of you when the interest-free period ends. So don’t undertake a balance transfer lightly.

One option, which requires a little planning ahead, is to put money on a secured loan with your bank while you’re still employed. This can be as little as $500 in some cases. The way a secured loan works is this:

  • You give the bank the money and they set it aside in a locked account.
  • You can then borrow against the principal amount.
  • Because the bank already has the collateral against the loan “secured” in an account, they tend to offer much lower interest rates than a credit card.
  • Using this loan conservatively while you’re unemployed is a very good way to maintain and build your credit.
  • The loan usually has a term, during which you can pay off and borrow again as many times as you like, meaning you get to use your original deposit multiple times.

Are You Prepared?

Before you quit your job, take stock of your financial position. Make sure you have:

  • Savings to see you through your expected unemployment, plus a little extra time. Six months is ideal.
  • A sustainable plan to cut your expenses.
  • A sustainable plan to pay for necessary expenses such as rent, loans, and health insurance.
  • A job plan that will maximize your productivity and reduce the amount of time between jobs.
  • Low credit card debt, and a conservative attitude toward credit card use.

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Ben Steele is a writer, theatre(re) professional, and nonprofit administrator. He was born in England, spent his teen and early 20s in Canada, and now lives in America. Please excuse his occasionally confused voice and the odd recalcitrant u after an o.