Can You Actually Afford To Quit Your Job?
A certified financial planner weighs in.
Maybe you want more flexibility to work remotely. Maybe you have a boss, co-workers, or customers from hell. Maybe you want to pursue a new career entirely or need space to heal from burnout. Whatever your reason to call it quits, your financial bottom line determines how soft your landing will be when you do.
Bustle spoke to Emily Millsap, a certified financial planner (CFP) who’s advised people for more than 20 years. Since global lockdowns started, the Baltimore-based expert has seen a spike in clients, from those with high debt to those with ultra-high net worth. “There was a lot of fear about how this would impact careers, income, and the markets globally,” says Millsap, the senior director of financial planning at Facet Wealth in Baltimore.
CFPs act as fiduciaries, meaning they are legally obligated to always act in your best interest. They advise on financial decisions, such as investments, budgets, and estate planning, to help clients reach their goals and develop healthy relationships with money. Some planners, like Facet Wealth, charge a flat fee. Others charge hourly, per preestablished plan, or a percentage of how much money is invested with them — so $10,000 invested with a CFP who charges a 1% annual fee would cost $100.
“The bottom line is that you need to be proactive in planning,” says Millsap of people looking to join the Great Resignation. Below, she offers tips for quitting your job, from setting timelines to finding the best financial apps.
“Under normal circumstances, we recommend having three to six months of all of your expenses on hand.”
What conversations are you having with clients about leaving jobs and their concerns about making the leap?
Preparing to leave a job for a new opportunity can be scary and exciting, so having your financial ducks in a row can help free you from the stress and anxiety that come with decisions that affect finances. We first look at creating a healthy financial foundation — good cash flow, proper emergency fund, appropriate insurance. This can give you the security you need to seek a new job or career. Once you have a good foundation in place, you give yourself the power to choose [your future].
We explore questions like: Do you have an emergency fund to bridge the gap until you find a new job? If you don’t have access to health insurance, [such as] via a spouse [or] partner, did you factor in paying for health insurance at a higher rate if you lose the company contribution?
How does your advice change across income brackets?
Making more money doesn’t necessarily equate to a strong financial position. Lifestyle creep is a very real phenomenon, and more income can often lead to higher expenses.
How much money should someone have before they quit?
Under normal circumstances, we recommend having three to six months of all of your expenses on hand. This number can vary based on your job stability, one- or two-income household, whether or not you have kids, etc. If you plan on leaving a job before securing a new one, you want to do a few things:
- Assess how long your emergency fund will last. Planning in advance can help you determine how much you need to save [before quitting].
- Revisit your budget. You may want or need to cut back on how much you spend. Start with the biggest priorities like food and shelter, then layer in obligations you’ve already committed to such as debt obligations, and don’t forget costs you don’t pay monthly, like homeowners or renters insurance. Most of the cuts will likely come from the “fun bucket,” like dining out, entertainment, travel, and hobbies.
Keep in mind all of this advice can change based on your personal situation.
What other things should people take into consideration?
COBRA or private health insurance can be much more expensive than your employee contribution, so do the math. According to health nonprofit organization KFF, the average annual cost of employer-sponsored health coverage in 2020 was $7,470 for a single person and $21,342 for a family. KFF also lists average ACA marketplace premiums by state and coverage level and has a calculator to estimate premiums and subsidies.
What do you think about borrowing from a 401(k)?
This one is tricky. If you take a loan from a 401(k), then leave your job before paying that back, it’s considered a withdrawal that will have tax consequences and possibly penalties (usually 10% if you’re younger than 59.5). Once you break the barrier of raiding your retirement plan, it’s very easy to break it in the future. If there’s any way to fund your resignation with your retirement dollars intact, I would encourage that first.
Are there any other considerations you talk to people about?
You’ll want to assess the current job market if you plan to leave a job before securing a new one. The Bureau of Labor Statistics issues unemployment rates by industry and duration of unemployment. For example, in 2021 the median duration of unemployment was 19.1 weeks [up from 10.3 weeks in 2020].
And add a little extra to your emergency fund to give you flexibility — how much depends on what will help you sleep at night. Earmark bonuses and tax refunds to help you get there faster. Don’t default to credit card spending, which can sabotage you before you even get started.
How do I set my timeline in anticipation of quitting?
I’ll sound like a broken record, but this is arguably the most important step: proactive planning. No two situations are the same, so you need to understand whether your current finances can support [the] change, and if not, how you can improve them to [set a timeline] without feeling stressed or worried.
What personal finance apps do you recommend for people thinking of quitting?
There are so many — Mint, YNAB, Every Dollar, Truebill. Start by identifying what you want the app to do for you. Is it strictly a budgeting app, do you want assistance with managing an old 401(k) that you’ll rollover, or are you looking for ongoing advice?
I have clients who use Excel or even just pen and paper. There are also some great old-school budget planners and bill organizers like Clever Fox and Planberry. I have the Clever Fox one and set a money date with myself every Friday — because I spend more on the weekends — and look over what my spending has been for the previous week. If I’ve been a little spendy, I know to tighten things up going into the weekend.
What should I do before I leave my job?
Take advantage of your health insurance by scheduling medical, dental, and vision appointments. If your vision plan covers glasses and/or contacts, buy them. Use up flexible spending account (FSA) money, which you forfeit if you leave the company, though a health savings account (HSA) is yours to keep. File for other reimbursements you’re eligible for, [such as] regular expenses like business meals, gym membership, home office allowance. Don’t leave money on the table: Check if you get paid for unused vacation days or PTO.
I’m ready to leave but my bank account isn’t. What now?
First of all, take a deep breath. Many people have faced this decision and navigated it with patience and planning. Do you need to boost your emergency fund, pay down debt, get control of your budget, or do research on new career opportunities?
This interview has been edited and condensed for clarity.