Key takeaways:
- Budgets aren’t static. You should review and adjust your budget to accommodate changes.
- Consider saving an emergency fund to cover 6 to 12 months’ worth of expenses before you quit.
- Don’t forget to collect your full compensation prior to your departure.
Moving to a new job opportunity or career can be an exciting time. However, quitting your current job is likely to interrupt your current routine and may disrupt your finances. If you want to financially prepare for a career change, scroll down for everything you need to consider before taking the leap.
1. Build an emergency fund
An emergency fund is a bank account used to save for unexpected expenses like medical bills, home repairs, or unemployment. Creating an emergency fund is an important part of a stable financial plan. You should aim to have about 6 to 12 months’ worth of your salary saved in an emergency fund.
If you decide to quit your current role before you have another lined up, or you start a new role and you decide it’s not for you, an emergency fund can keep you afloat until you secure a new job.
2. Adjust your budget
Many people think of their budget and living expenses as something set in stone. However, you should make it a habit to periodically review your budget and adjust it when things change. If you have some time off between jobs, you may want to modify your budget and spending habits before you lose your steady income for a time.
Ideally, you’d be able to rely on an emergency fund in this situation, but not everyone has one. If you don’t, consider what you have saved, your current expenses, and spending habits. Tweak your budget accordingly.
When you adjust your budget, be sure to account for benefits like free lunches or discounted daycare. Whether you’ll be gaining them or losing them, they should factor into your new budget.
3. Keep an eye on your spending
If you have a solid emergency fund and you have adjusted your budget, there’s no need to immediately cut out extras, like a trip to your favorite coffee shop. However, it’s still a good idea to keep track of how much you’re spending so you can understand the full picture. Once you have an idea of how and where you’re spending your money, creating and sticking to a budget will be easier.
4. Check and refinance your current debts
As you financially prepare to quit your job, carefully review the fees and monthly payments associated with your debt. Consider how much debt you have and how much you’re paying in interest for each.
If you have several loans with high interest rates, consider getting a debt consolidation loan. That way, you can combine all of your debts into a single loan with one monthly payment—and possibly a lower interest rate.
If you’re carrying a balance on several credit cards, consider a credit card consolidation loan. Similar to a debt consolidation loan, you can use this type of loan to combine your credit card balances into one. This will help make the payment more streamlined and may cut the amount of interest you pay each month.
5. Consider tuition reimbursement
Sometimes company benefits, like sponsored continued education, come with requirements. A common stipulation of this type of benefit is that you have to stay at the organization for a period of time once you’ve completed the course.
If your employer has covered any of your continued education, check if you’ll need to pay it back. Be sure to check the agreement before you resign so you’ll know how much you’ll owe, and you can work it into your budget.
6. Collect your full compensation
Any retirement savings that you have at your current job are a part of your full compensation. Don’t forget to take them with you. If you have retirement plans, like a 401(k), with several employers, consider combining them.
If you’re not sure what to do, consult a financial advisor to help you understand your options and what may be the best decision for you. They may recommend leaving your 401(k) with your previous employer, rolling it over to a plan with your new employer, or investing it in a non-employer retirement account.
7. Negotiate a relocation budget
If you need to relocate for your new job, check if the organization will pay for any of your moving costs. If they do not, research different relocation packages, consider your needs, and try to negotiate with your new employer. But prepare yourself for the possibility that they may be unwilling to compromise.
Consider the benefits of your new job compared to the cost for you to take it. If the transition will be costly, but you could recoup the money quickly once you’re settled, it may be worth it. However, if the transition is going to ruin your finances, you may want to think about other options, like taking out a moving loan.
The bottom line
A job or career change can be an overwhelming task for anyone. It may help to think of your job change as an investment. It might be risky, but the return may be worth it. The key to taking that risk is to plan ahead financially for any possibility.
Start by assessing your finances in relation to what you may need to financially prepare for in taking a new job. From there, you can adjust your budget, your spending, and start creating your emergency fund if you don’t already have one.
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