5 things to do with your finances before you quit your job

Planning and research are key when preparing to leave your current employer

Millions of Americans are leaving their jobs in what has been called the “Great Resignation”. Many more are considering joining their ranks.

The trend is a combination of a few factors. There is a backlog of people who would have resigned under normal circumstances in 2020 but held on to jobs during the uncertainty of the pandemic. Others have reconsidered their work-life balance over the last 18 months or have had to adapt to new personal arrangements.

A further group is unhappy with how their employers treated them during the pandemic, or dislike the arrangements around a return to the office. They now want better or more flexible conditions in their working lives.

Whatever the reason for leaving your current job, it can be a particularly daunting time if you don’t have a new role lined with a different employer. Even if you do, there will likely be some disruption to your personal finances as part of the natural upheaval of a big life change.

Personal finance experts and certified financial planners (CFP) shared their thoughts with The Independent about the steps you should take before you hand over that resignation letter.

Build up an emergency fund

Take a long hard look at your savings. How much have you got set aside for a rainy day? It’s possible that you won’t have any income for a month or two, or perhaps longer. This is that rainy day.

There’s no rule of thumb here, but most financial planners will recommend that you try and save up to cover six months of expenses. Some suggest more, some less – and there are many ways in which to make what you do have saved go further.

“Prepare for the most challenging of scenarios,” says Mark Wernig, CFP and principal at Dowling & Yahnke Wealth Advisors. “Financially that means having that nest egg … if you are making a professional pivot, I would say that the requirement is six months of your traditional expenses.”

If you have the time to prepare before leaving your job, try and pay down the debt that you can to simplify your finances going forward.

Julien Saunders of personal finance blog Rich and Regular notes: “Achieving debt freedom isn’t necessary before quitting a job but it can be the key to quitting successfully and putting yourself in a position to move onto something greater.”

He adds: “Simply put, debt freedom relieves the pressure you’ll feel to replace your income immediately or replace your income fully and gives you a better chance to bet on yourself.”

Prepare a bare-bones budget

Come up with a bare-bones budget in order to understand exactly what the essential expenses are that you need to run your life.

“Make it lean,” says Mr Wernig. “Revisit all budgets and financial plans that you have in place and run them leaner than you usually do.”

Certified financial planner Shannah Compton Game and host of the Millennial Money podcast says that it is important to know your “foundation number”.

“This is the number that you absolutely have to pay each and every month,” she explains. “Your foundation number is made up of your fixed expenses, like your rent or mortgage, car payment, credit card minimum payment, groceries, etc. Once you know this number you have an understanding of how much you need to make to cover your monthly needs.”

This is also a moment to review how much you are investing – Ms Compton Game suggests considering a pause on investments until you secure new employment in order to stay on top of your financial needs.

Constantly and consistently review expenditure

Having come up with your lean, pared-down budget, it’s important that you keep reviewing it in order to stay on top of your finances.

Ms Compton Game recommends this for any stage in life as a way of staying aware of your financial situation and keeping your focus on your current goals.

“I suggest creating a weekly money date with yourself or a partner if you’re in a relationship,” she says. “Set aside 20-30 minutes a week to look back at your spending from the previous week and the upcoming week. Make any changes you need in your spending and saving for that week.”

Pay close attention to retirement funds and other compensation

Pay attention to your retirement accounts and other benefits you might have through your current employer. Don’t leave anything on the table and make sure you have alternatives ready so you don’t lose out.

“This is something a lot of people do not pay attention to,” observes Akeiva Ellis, financial planner and educator with Ballentine Partners, and a CFP Board Ambassador. “They leave a job and think, oh, well, I have this amount of money in their retirement plan that’s all coming with me, when that might not be the case.”

Be wary of the scheduling of your work benefits and compensation, warns Autumn Lax, a financial planner at Drucker Wealth. “You want to be sure you aren’t on the cusp of losing out on valuable equity compensation or benefits. This is particularly important for anyone who has been granted stocks as part of their compensation.”

Research your insurance options

Ms Ellis also stresses the importance of researching your health insurance, life insurance, and disability insurance options. You may need to replace employer-provided policies with individual plans during a gap in employment.

“Research health insurance options and have something lined up ahead of time,” agrees Ms Lax at Drucker Wealth.

“Knowing the budget for what it will cost to pay for these items on your own is an important consideration so costs don’t unexpectedly creep up on you!”