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The COVID-19 pandemic triggered what some are calling "the Great Resignation" as millions of Americans re-evaluated their lives and realized they weren't happy with their jobs. Nearly 9 in 10 executives report higher-than-normal turnover at their companies, according to a recent PwC survey. Are you thinking of quitting your job to start a new career, take a break or seek another job? Quitting a job can open up a world of opportunity, but there are some key financial factors you should evaluate before leaving a job without another one lined up.
Reasons to Quit Your Job
There are many reasons you may want to quit your job. Perhaps you're burned out and need to take a break from working. You might need to focus on caring for young children or elderly parents. If you're in your 50s or 60s, your employer may have offered severance packages or buyouts to tempt employees to retire early. You may be planning a career change or considering going back to school. Or you may simply want to look for another job, but your current job leaves you too exhausted to do so.
We all have days when we want to quit our jobs, but it's important not to make a rash decision. For one thing, it's usually easier to get a new job if you're already employed. Quitting your job without a retirement plan in place or another job lined up could be risky. However, if you research your options and make a plan for managing your financial obligations during this time, there are also potential upsides.
What to Consider Before Quitting Your Job
Before you quit your job, carefully consider the following.
What are your monthly expenses? How will they change after you quit your job? If you're becoming a stay-at-home parent, you may have fewer expenses because you won't need child care. On the other hand, if you're going back to school, you'll have the additional cost of tuition. Create a budget to project how much you'll need to meet your expenses without a job.
How will you pay your bills? Do you have savings you can live on that will cover all your monthly expenses? If so, how long will that money last? You may be tempted to use your emergency fund to tide you over, but that could leave you in dire straits if an actual emergency, such as an unexpected medical cost or car repair, arises. Can you reduce your living expenses or put more into savings before you quit working? If you don't have much in savings and your expenses are high, it's probably a good indication that now may not be the right time to leave your job.
How will quitting affect your income? Consider any severance pay you may receive or unused vacation days you can cash in. Do you have another source of income, such as a spouse's job or money from investments? If not, you may need to find ways to make money after leaving your job if you do not plan on going straight into another full-time position. For instance, you could look for part-time work, sell items online, freelance or find other ways to make money without a job. Just keep in mind that these earning possibilities may take some time to get up and running.
How long do you expect to be without work? If you're leaving your job to train for a new career or go back to school, you should have a fairly good idea of how long that will take. Are you looking for another job in your field? The average job search takes about six months, according to the Bureau of Labor Statistics. And even if there is a lot of demand in your field, the hiring process can take time. You'll need to apply for jobs, go through interviews and background checks and wait to hear back from employers.
Where will you get health insurance? If you get your insurance from your job, you'll need an alternative solution. Health insurance options may include COBRA coverage through your former employer; coverage through a spouse, partner or parent's plan; or buying insurance on the Health Insurance Marketplace. Buying health insurance on your own can be significantly more expensive than employer coverage, however, so factor this into your budget.
Quitting a job isn't a decision to make lightly. Before giving notice, think about what you're really looking for. Perhaps you want a higher salary or more room for advancement. Maybe you'd like a more flexible schedule to allow you to take your elderly mother to doctor appointments. You may want to work from home to avoid a punishing commute. Asking your current employer to accommodate some of these goals couldn't hurt—and you just might get what you're looking for without going through a job hunt.
How to Protect Your Finances and Credit While You're Not Working
Reducing your debt obligations before you quit your job will help reduce your monthly expenses while you're not working. Create a plan to pay down your credit cards and loans while you're still employed so you can enjoy greater financial freedom after you leave.
It's also important to protect your credit while you're unemployed. A low credit score limits your financial options and can even make it harder to get a job when you're ready. If possible, take time to improve your credit before you leave your job by bringing any past-due accounts up to date, paying off any collection accounts, keeping credit card balances low and continuing to make all debt payments on time. You can set up free credit monitoring from Experian to keep tabs on your credit now and after you leave your job to embark on new opportunities.