By Selena Garrison
Four years ago, I sat waiting for my boss to enter his office for the appointment I had set up with him a few days before. My palms were sweating, heat was rising up the back of my neck, and I pretty much felt like I was going to pass out. He knew that I had started my own business 10 months prior, but the time had come to break the news that I would be leaving my job to pursue my business full time.
Whether you are considering quitting your job to start your own business, become a full-time parent, pursue a different career opportunity, or for some other reason, it is important to make sure that this leap is one that you are prepared for financially. According to Marc Stalvey, a financial adviser with Edward Jones, there are several important areas to take into consideration.
First, you want to make sure that prior to quitting your job, you have plenty of money set aside in savings. Even if you have another job or source of income already lined up, you will want to have at least six months of living expenses tucked away in the case of an emergency or unexpected life event (in my case: Surprise! You’re pregnant!). If you do not have another stable source of income available, Stalvey suggested having one year of necessary expenses available.
Next, you will want to consider some lifestyle changes. You need to put a price tag on your current lifestyle and figure out what you need to do to reduce that cost. “You can’t keep spending like you’re making the same paycheck,” said Stalvey. “That is what causes people to find themselves in real trouble.” The easiest place to reduce your spending is on discretionary expenses, like eating out often for lunch or dinner ($6.69 for a turkey sandwich at Panera Bread), your daily latte habit ($3.65 for a grande café latte at Starbucks) and your entertainment choices ($12 to watch a movie at Regal Cinemas). Making adjustments in these areas will add up quickly and give you a lot more breathing room when your paycheck goes away. If your income reduction is going to be long term, an even more important place to make changes may be in your fixed expenses. These are things like your rent or mortgage payments, insurance payments, car payments, utilities, credit card payments, student loan payments, cellphone/internet/cable payments, etc. By reducing the bills you have to pay, you can make your savings go a lot further if you need to dip into it.
Stalvey also suggested looking at the benefits you receive with your current job and considering what you will do to replace them. Does you job provide health insurance? If so, how will you replace it? If you have been making retirement account contributions through your employer, are you fully vested? What will you do with that account? Will you roll it over? How will you continue to save for retirement? Make sure you know the rules (and penalties) associated with retirement account withdrawals. Are there any other benefits you receive (free gym access, paid vacation, child care provision, etc.) that you will need to consider? All of these factors can make a big difference when they are no longer available to you.
One final word of advice is to make sure you leave on good terms. As much as you might like to make a dramatic exit, don’t. You may not like your job (or you may absolutely hate it), but if you were a good employee, your old employer may be your best ally as you go out on your own. You never know when you might need to ask for that old job back or need a personal reference, so make sure to give plenty of notice, emphasize your thankfulness for the opportunity to work there, and do not, under any circumstances, speak negatively of your boss or the people you work with.