Is this the year you take time off for a career transformation, to further your education, or to offer care for a loved one during a time of need? No matter your reason for stepping out of the workforce, you’ll need a cash crash pad to rely on. “In today’s world, it’s important for people to feel empowered to make dreams happen, but it’s also important to plan before you leap,” explains Marie O’Keefe, a Northwestern Mutual financial advisor.
Before you make any rash decisions or put in your two-week notice on a whim, make sure you’ve got a solid financial game plan in place so that no matter where you land, you’ll be standing on solid ground.
Make A Budget
Before you make any moves to leave your current position, make sure you have a detailed budget in place for how you’ll cover your time out of the workforce, says Julia Ramhold, consumer analyst for DealNews.com. “If you’re quitting to take a sabbatical, your budget will determine how long you can go without working,” Ramhold says. “If you’re quitting without another job lined up, budgeting will help you figure out when you absolutely must have another job in place.”
Like your regular budget, it will include all your big-ticket expenses like mortgage or rent, food, phone and internet. But also create a separate spreadsheet to analyze all your other expenses — your negotiables and non-negotiables. And be prepared to make some tough decisions when you don’t have regular cash coming in.
“Be prepared to tell your friends you can’t go out as often for dinner, or take part in their shopping spree for a new wardrobe,” Ramhold says. “If you think you’re going to be suffering from FOMO, have some free or cheaper suggestions lined up so that you can still hang out with your friends without draining your funds.” Preparing ahead of time will help you make those calls about what you’ll still pay for and what you’ll skip.
Revisit Your Credit Score
If there’s any chance you’ll need to apply for a loan or credit card after you’ve quit, personal finance expert Trae Bodge encourages a second look at your credit score now, just to be safe. “If your credit isn’t in great shape, take the time now to try and improve that score. If you need to apply for a loan in the near future, your employment history could work against you, so a better credit score can improve your position,” she explains. What does this look like in action? Say you quit your job and then you and your partner decide to purchase a home together. Since your income will be at zero, the loan you’re able to qualify for will be solely based on your spouse’s income. Make sure that’s not a concern for you before making the leap.
Arm Your Army
There’s strength in numbers. If you don’t let your squad know about your exit strategy, they can’t support you. Certified business coach Ivy Slater says to be vocal about your career goals and reach out to friends, friends-of-friends and mentors for their advice and guidance. “We are much more successful when we work together and understand the value of our network,” she adds. To go a step further, start cold emailing or messaging leaders in your dream industry or company. Perhaps they will take you up on the offer to meet for coffee and allow you to get some valuable networking time in before you make the leap.
Vacation Time + Healthcare Concerns
Before you put in your notice, Slater urges professionals to check how much vacation time they have left. Most of the time, companies will allow you to use that paid-time-off before you head out the door. Not only does this give you more time to look for a new job while being paid, it’s important to take advantage of every benefit you have before you lose it, namely your health insurance. Career transition expert Wendi Weiner reminds professionals that there are penalties for being uninsured under the current administration. Before you head out of the office for good, make some phone calls to common providers in your state to explore your options. And talk with your human resources lead about what COBRA options you may have post-employment. And remember, sometimes you’re insured for a few weeks past your last date, but confirm that information to make sure.
To play it safe, Weiner also suggests starting a side fund for medical-related necessities “If necessary, look into a short-term insurance plan that can cover you for a few months before your new plan kicks in so you have measures in place, as you never know what can happen in terms of a health crisis or health emergency.”
Don’t Forget About Debt
Even if you’re taking a break from the 9-5 grind, that doesn’t mean that your student loan bills, credit card bills and other debt obligations will conveniently go away. Bodge says it’s essential to create a master game plan for how to handle what you owe. “Take a look at your mortgage, student loans, credit cards and your car loan to see what kind of interest rates you’re paying. If you’re paying a high APR on your credit cards, mortgage or both, make moves to shift that debt to a lower interest option,” she says. “If you end up being out of work for a while, you don’t want your debt to be working against you.”
Know What’s Next
If you’re looking to pivot within your career, sometimes the grass can appear greener — and the cash thicker — than it really is. As Northwestern Mutual’s O’Keefe reminds, before you throw everything up in the air to see where it lands, it’s essential to know what you’re getting yourself into. “Research online what the average pay is for the job you’re seeking, ask people you know in the industry what they make, or find someone that is higher up in the industry you aspire to be,” she suggests. “Mentors are a great idea when switching careers in general, but they can certainly help with compensation advice so you’re going in with your eyes open.”
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