Quitting your full time job can be both exciting and scary. Whether in pursuit of a new career or in pursuit of entrepreneurial goals, it is crucial to make sure you are financially prepared for this new lifestyle change. Read on for five steps to prepare financially for this moment.
It is estimated that about one third of your life will be spent at work. Whether you want to find a different job that aligns more with your purpose, are leaving a toxic work situation, want to build your own business, or simply refuse to spend this much of your life working, quitting your job is an alluring move. No matter your reason, you need to ensure you are financially prepared to quit your job without going broke.
Like any other form of preparation, things will take time. Being financially prepared to quit your job means that you can’t quite make this decision in a week. If you have already sat with this idea for some time now, it’s time to start preparing your exit. Here are five ways to financially prepare to leave the workforce, either temporarily or permanently.
1. Develop Your SMART Goal
As a refresher, a SMART goal is one that is: specific, measurable, achievable, relevant, time-bound. In times of stress or unhappiness, rage quitting is tempting. This, however, does not give you the room to be prepared and make this a comfortable “9 to 5”-free time. To create your SMART goal, answer the following questions:
- Specific: For what purpose are you quitting? What do you hope to be doing instead?
- Measurable: What are your milestones on this journey? In other words, how will you know you are on the right track towards finally quitting?
- Achievable: What needs to happen for you to continue living comfortably? (This is what we are tackling!)
- Relevant: What is your why? How do you know this is the right move for you? What do you feel?
- Time-bound: By when would you like to quit? For how long will you be out of your 9 to 5?
Like any other goal, having a SMART goal for your plan to quit will provide you with a roadmap to continue turning back to.
2. Build an Emergency Fund
An emergency fund is a bucket of cash that is easily, readily accessible. Typically, these savings accounts are reserved to be used in the case of an emergency. However, since you are actively planning towards quitting your job, think about this as a cushion. The amount of money you place into this fund will depend on your goals. For example, if you are looking to make a career pivot and get back into the workforce within 6 months, your emergency fund should consist of minimum 6 to 8 week living expenses, including rent, bills, food, transportation. If you are quitting your job to fully launch your business, set aside an appropriate amount of money to last however long you have decided you need to get your business off the ground. Maybe even set aside some money for any business or legal fees that may come up.
When creating a plan to build this fund, think about it like any other savings sinking fund. You will funnel money into this account little by little. How much money per paycheck can you contribute to this emergency fund? Does this number align with the timeline you have for quitting your job?
3. Create A Budget
Quitting your job means the end of what was possibly one of your most reliable and consistent sources of income. For the majority of us, we rely on our 9 to 5 as our primary source of income. As you plan to quit, your finances will have to adjust accordingly. If you had a budget, it might need to change. If you don’t have a budget, you will need to start creating one. The four main types of budgeting are the 50/30/20 method, the envelope system, zero-based budget, or a flexible pay yourself first option. The budgeting method that you choose will be the one that is most aligned with 1) your lifestyle, 2) your emergency/savings cushion, and 3) the length of time you expect not to be working.
Adjusting to this new life might not be easy. Instead of waiting to adjust to a budget-led lifestyle once you quit, try to integrate new practices before you actually quit. For example, how can you start implementing your budget sooner? Or, in what areas of your life are you cutting back to stretch your emergency fund? Can you start some of that now in preparation?
4. Attend to your 401(k)
This part sounds so basic! But when we’re thinking about leaving a job, our 401(k) may be the last thing on anyone’s mind. A 401(k) is an employer-sponsored account, meaning you cannot get a 401(k) without being an employee or owning a business. Often, these accounts have a small employer contribution as well.
What you can do with this account depends on the dollar amount of your account. Some people may just receive a paper check with the balance, while others will have the option of “rolling it over” into a new employer-sponsored account or an IRA. Always remember: what you decide to do with this account should be tied to your investing goals.
5. Build Your Alternative Streams of Income
While this is primarily for those of us who expect a more than three month break from the workforce, really, we should all be diversifying our income streams. Economically, this might be one of the most important things we learned during COVID-19—that our jobs are not secure. If you do not know where to start, we’ve put together a list of 20 side hustles you can start today.
While your emergency fund that you’ve been saving up for will provide the bulk of what you may need financially, developing a side hustle ensures greater security and maybe even a longer break. If you are quitting your job to pursue entrepreneurship, consider building out the foundation to your project before quitting your job. This ensures that once you do quit, your side hustle will be waiting for you to give it more time and energy to scale.
If the reason behind your resignation is around financial independence, what’s your investments landscape look like? When will you start withdrawing from accounts? How will your strategies change? Will investments and capital gains provide a stream of income at this point in your life?
Quitting a job for any reason is both exciting and nerve-wracking. Thankfully, dozens of mujeres have done this before. As you start dreaming of a life outside of a 9 to 5, follow steps one through five to make sure you are financially prepared to leave your job.