We all move from one job to another at some point, and inevitably, there are some housekeeping elements as you shift out of one role and into another.
Making sure you cover your financial bases can get you ahead – and keep you from stressing about money.
Before leaving a job, there are eight important financial steps to take to help make this transition.
Thinking about your finances before making this big career decision will allow you to plan for things like saving for an emergency fund and helping you understand what you need to do with your 401(k).
Leaving a job may financially affect you in many good and bad ways, so make sure to follow these steps.
How much money do I need if I quit my job?
If you are thinking of leaving your job for another or taking time off before looking for a job, it’s important to have a savings plan in place.
This is a huge financial decision with possible financial implications.
Before you quit your job, you want to have at least three months of your expenses saved. However, if you want more security, save up to six months. Some factors that can impact how much you save are:
- Do you have another job lined up?
- Are you taking a few months off before looking for a new job?
- Do you have a spouse with a job?
- Are you the sole breadwinner in your household?
Look at your unique situation to see how much to save.
How do you financially prepare for a job change?
There are eight key financial steps to help you financially prepare for a job change. Some of these may be obvious, but there are some important things you may forget about in the process of changing jobs.
1. Emergency fund.
Whenever making a large financial change in your life, having an emergency fund is important.
Unless you have another job lined up, having money to cover your living expenses is critical, and can help your stress levels. You can set this money aside in a high-yield savings account so that it is easily accessible.
You may not think you need this, but when you change jobs, there can be a lot of hidden expenses. For example, you may need to buy a desk if you’re taking a remote job. Also, if you are moving states, there are costs associated with moving.
2. Retirement accounts.
If you have a workplace retirement account, like a 401(k), make sure you know the next steps after you put in your notice.
Find out how much of your workplace’s contributions are vested. You will also need to make a plan about where you roll over this account.
A lot of people focus on the amount they have saved up, without paying attention to the benefits and compensation that is due to them from their workplace. Go over your current job’s benefits with a fine-toothed comb.
Pay attention to your retirement plans and other benefits you might have through your current employer. Don’t leave anything on the table and make sure you have alternatives ready so you don’t lose out.
Some benefits are rollable, meaning you can still qualify for them after you leave your current employer, while others end upon your termination. Researching the different types of benefits can enable you to prepare better, especially if you have plans for your benefit or compensation.
3. Insurance.
Before leaving a job, take advantage of any type of insurance you have not used.
At the same time, you’ll most likely have insurance with a new job, so it’s best not to leave your current insurance unused. If you get a credit towards contacts, massages, dental work or classes, use it. Also, look into your FSA or HSA accounts if you have one.
Having no plans on health-care coverage can put you in a financial hole.
Depending on the ailment, while you may have to dip into your savings to take care of your health. You may also not be able to be productive during the period of treatment which essentially means you are losing both ways, spending more with less income coming in.
Additionally, you could become a financial burden to your partner.
So, as you are building an emergency fund, you could also build a separate one for your health. The amount may not be much, but you should be consistent in your contribution. You can allocate 5-10% of your savings for health care purposes.
4. Credit changes.
If you’re looking for a new job, don’t do anything that can impact your credit.
Try not to make major life decisions at least six months before you plan to make a change. Taking on new debts can lower your score, and your credit will be run if you are looking for a job.
You don’t want to have an employer not offer you a job because of your credit when it’s an easy thing to avoid happening.
5. Update your budget.
You’ll want to readjust your budget as you transition into a new job and leave your current one.
Starting this before you have a new job will help you know if you need to negotiate for a higher salary. It’s easy to set a budget and not touch it again, so major life events like this are an appropriate time to update your budget.
The time frame and amount you save will determine how to reset your budget and your money goals. A budget helps you identify areas where you can manage your money better. Look for loopholes in your budget where you can plug expenses.
You can decide to cut down on areas like cable subscriptions or commuting to work. However, this doesn’t mean you should live the life of a hermit or kill off other aspects of your life!
Ways to Feel Like You’re Not on a Budget, While You’re Still Paying off Debts
6. Check with HR about anything you may owe.
While this doesn’t always happen, you may owe your current company money when you leave. This can be from:
- tuition reimbursement
- relocation
- negative PTO (Paid Time Off)
Check with your HR for any paperwork that you’ve signed to know what you may have to pay back. Every company is different, but if you do owe money, it will be due shortly after you put in your notice. Save up for these expenses on top of your emergency fund.
7. Check your PTO balance.
Always check your time off balance and keep a record when you put in your notice and on your last day.
Usually, companies will pay you for any unused accrued PTO time, which is a nice bonus! You want to understand how much you should anticipate getting back, and if it’s incorrect, you can talk to HR.
8. Prepare for relocation.
If you’re looking for a new job, you may be open to relocating to a new area.
While some companies pay for relocation, some offer less money or no money.
The cost of moving can be expensive from:
- Lease cancellations
- Moving truck rental
- Application fees
- Deposits
- Hotels
- Rental cars
You may get the money for your move right away, but some companies only reimburse you.
So even though you’ll be getting money back, you may have to use your credit card for payments instead of cash.
9. Have an estimate of your expenses.
Try to have an estimate of the expenses (present and future) you would incur when you leave the job.
Determine how much you’ll need to save to feel comfortable stepping away from your full-time job. Calculating your take-home pay after taxes and scrutinizing your previous months’ expenses is a good step, but this does not give you the full picture.
You should also try to forecast your future expenses. Think in terms of responsibilities you plan on adopting as you age and how they would have an impact on your expenses. For example, you may decide to marry, take a pet, buy a car, or a new house.
For every responsibility you take on, this adds an extra cost to your expenses. Thinking in these terms enables you to plan adequately and make preparations to accommodate these milestones.
10. Don’t neglect your other saving goals.
It is not in all cases that resignation can lead to a suspension of retirement contributions.
Many workers tend to leave jobs without thinking through what they’ll do with their company-sponsored retirement plan.
If your retirement plan can be rolled over, then you should consider rolling into an IRA and making your monthly contributions.
An IRA gives you control over your investment choices and tax withholding requirements should you withdraw funds. You can also dip into it to borrow to take advantage of opportunities or cater to an emergency.
Then, when you get your dream job, you can roll over your retirement account to your new employer.
Are You Considering Financial Steps When Leaving a Job?
Quitting your job can be empowering – but only if you’re financially ready for what comes next. Taking the time now to get your finances in order will not only give you peace of mind, it will set you up to make confident, thoughtful choices about your future.
From building a solid emergency fund to understanding your benefits, insurance, and budget shifts – each step you take adds a layer of security that helps you navigate change with less stress.
You’re not just walking away from something – you’re walking toward something better.
Give yourself the best possible foundation. Plan ahead, stay informed, and trust yourself to take this leap wisely.
With the right financial prep, you’ll be free to focus on what matters most – your goals, your well-being, and the next exciting chapter of your career.
Editor’s note: This article was originally published Apr 11, 2023 and has been updated to improve reader experience.
