How Much Money Should You Save If You’re Quitting Your Job Without Another One Lined Up?
Money expert Mandi Woodruff-Santos explains how you can calculate how much money you need to save before you leave work when nothing else is up.
Leaving your job is a big step and there are a number of reasons to take this step. Maybe you got burned and needed to rest, maybe you found a better opportunity with another employer, or you finally decided to start a business.
Before you quit work – especially if you haven’t started another right away – it’s important to make a plan to keep yourself (and your family) afloat. After all, there are certain living costs for which you are still responsible. Making a nest egg of money is an important part of this plan.
But how do you know you’ve saved enough money to quit your job?
Is “cold goose” a good idea?
Over the years, there has been general advice that you should never give up your work unless you set another opportunity.
A “cold goose” approach – when you leave work without another chance – can make you feel trapped if you are not prepared enough to lose income and benefits such as health insurance and other benefits.
The question of exactly when you should leave your job is probably known to people who dream of doing business. And sure, giving up your job will definitely be freedom of time so you can focus on starting your own business. However, it is often wiser to work in your own company and at the same time be sure of a regular salary and benefits. In fact, most people have costs such as space and food that need to be covered when starting their new business.
“I’m not a big supporter of “cold goose” and having no job up lined, especially now in a remote work environment where you have a lot of flexibility and a salary advantage,” said Woodruff. -Santos.
So before you start writing this two-week notice email to your human resources department, you want to take a few more steps to make sure you’re well prepared for a comfortable level of financial security.
What are the invisible costs of leaving the job?
An important step to ensure financial security after leaving the job is to come up with some hidden costs of leaving the employer.
If you work for an employer, you may be enrolled in a company-sponsored health insurance benefit, where a small amount of your pre-tax salary goes to cover your premium. But once you say goodbye to the job, you have to find yourself health insurance, which can be expensive.
“Healthcare is one of the reasons why people can find safety at work from 9 to 5, and I don’t want people to get the impression that they are leaving your job and starting your business happens quickly.”
And for people who give up their jobs so they can start their own business, Woodruff-Santos points out that there are many business costs that are quickly unintended by comparison.
“You may have the specific equipment you need to use in your business, or you may be using a corporate laptop to work on your business, but now you need to turn it back to the company and get your own laptop,” she said.
“I have all these subscriptions, such as Quickbooks, a calendar scheduling service, and a social media service for my business. It costs $100 to $200 a month [in total] and these are the main business costs.”
If you are leaving your job and going on to become an entrepreneur, these hidden costs should also be taken into account when determining how much you need to save before quitting.
How do you calculate how much you should save before leaving your job?
To determine how much you should save before you leave your job, you should consider your various living expenses (rent/loan, transportation, insurance, food, debt repayment, dinner, gym membership, etc.) and how much you will spend to go on with your life every month.
Woodruff-Santos always knew she had a money cushion handy for several months of expenses if she or her husband lost their job or wanted to quit.
She makes sure that she always has a maximum of 12 months’ expenses saved up.
“For me, the number is logical because I’m a mom, so my lifestyle is expensive for the big duties on my plate,” she said. “If you are young and have small responsibilities on your plate and you only take care of yourself, you will save a little. But you will not regret too big a financial cushion to start a business.
And of course, don’t forget to include monthly hidden costs like health insurance.
If you know how much you spend each month to stay afloat, you want to multiply that by the number of months of downtime you’re trying to cover.
Let’s say you spend $2,000 a month, and assuming you need six months to get ready to start ar business, you need to save at least $12,000 to cover your expenses.
Does your emergency fund count?
When it comes to building a comfortable savings pillow before leaving work, you may have noticed that the process is similar to building an emergency fund. And you may be wondering: can you use your emergency fund as a savings cushion to quit your job?
“Actually, you want to separate the two,” Woodruff-Santos said. “Emergency funds are intended to be reserved for unforeseen expenses, such as the breakdown of your car.
When you know you are leaving your job, and it will take you a long time to set the next step, you will want to go beyond what you spend on the emergency fund.
And like a regular emergency fund, you can build your “I want to quit” fund into a high-yield savings account that you can easily access when you’re ready to withdraw.
How do you deal with obstacles when trying to save your money?
Creating a savings account is often easier said than done. She focused heavily on her income and was able to take advantage of other compensatory benefits for each new job she started, including capital applications and sign-up bonuses.
She also contributes 15% of her income to 401 (k) account per payment cycle and invests 20% of her income in savings.
But no matter how much you make and how many side gigs you have to get closer to your goal of stopping your work, there are only a few expenses that may seem to threaten your progress.
Maybe you are asked to go to a friend’s wedding, or maybe someone in your family is asking for financial help for large expenses. On the one hand, you can disgust your friend or family if you don’t help, but on the other hand, you can lose motivation and even a little stress when you spend too much money, which means you fall out of your own financial goals.
“You have to be clear about your values and accept the fact that you are on your own path and not others,” Woodruff-Santos explained.
“It could mean that you are refusing an invitation to a wedding reception, and that can be annoying. But remembering that you don’t always want to set goals for others will help you stay on track.”
In the end,
Leaving work is a big decision and a significant milestone. Unless you are in a serious situation where you need to leave immediately, it can be very helpful to come up with a well-thought-out plan to maintain your financial security while you exit.
This can be especially true if you plan to leave your 9-to-5 and focus more on a business, which often brings some additional hidden costs – such as hardware, software, and possibly office space – where you have to pay.
Once you have a good idea of how much money you will save (12 months on expenses or less), plan to save on a high-yield savings account.
It takes a while and you will have unexpected expenses along the way, which may dampen your motivation, but staying cheerful and purposeful with your money can pay off in the long run.