In our last episode, we discussed how to prepare to quit your job to pursue another opportunity whether paid or unpaid. Since the three of us have all taken the big leap and quit our traditional jobs at some point, we know first hand how to establish financial stability even when the future is uncertain.
Before you quit your job whether it’s to start a new business, travel around the world for a year, or land a higher-paying job in your field, you need to start making certain financial preparations as early as possible. Just because you quit your job, it doesn’t mean bills will stop coming to your house and your living expenses will come to a halt.
Since our jobs are such an important contributing factor to our income and other financial responsibilities, it’s important to make sure you set yourself up for financial success before you quit your job. If you are going to be quitting your job in the near future or even a year or two out, here are 3 financial preparations you need to make.
1. Set Up an Emergency Fund
Having an emergency fund is important for anyone but it becomes crucial once you give up your stable income and quit your job. Unexpected expenses like emergency car repairs and medical expenses can seem devastating if you are in between jobs and don’t have enough money to cover the expense.
Even if you quit your job with intentions of starting a new job with a better salary in a few weeks, you may still need money to fill in the gap when you won’t be earning an income. Even if you were to start working another job shortly after you leave your current job, you’ll still need to wait a few weeks until you receive payment anything can happen during that time.
Regarding self employment, sometimes the income I earn from freelancing fluctuates quite a bit so I made it a priority to save up a few months of living expenses before I quit my job to work for myself.
Sometimes I receive late payments from clients or work on temporary projects and I knew I didn’t want to have to worry about being able to cover my expenses in between payments. A few months before I left my job, I started depositing large amount of money into a high-yield savings account until I reached an amount that I felt comfortable with based on my needs.
I used some of my side hustle income at the time to add to my emergency fund and today it helps assure me that I can handle an emergency expense with ease without having to go deeper into debt.
2. Establish Your Next Stream of Income
I had a mini-emergency fund, some business savings, and a realistic idea of what I had to earn in order to survive each month before I quit my job. But the biggest thing I had going for me was an existing stream of income already coming in from my business.
I took a big risk by quitting my job with little in savings and a large amount of debt to pay off, but my security was in knowing that I was already earning enough to live off of each month.
Even if you don’t plan to quit your job to start a business of your own, you need to have some kind of money flowing in each month. That may mean money coming in from your investments or retirement funds if you decided to quit for a retirement or a mini-retirement in between careers or other life changes. No matter why are quitting your job, you need to make sure you have money going into your checking account each month to cover the bills you need to pay.
3. Create a Realistic Bare Bones Budget
While I definitely did my fair share of saving prior to quitting my job, I also created a bare bones budget to calm my nerves since I had no other income coming in at the time (which is why #2 above is critical!).
A bare bones budget is exactly as it sounds. You take all of your “extra” wants out of your budget, and focus solely on your needs. Basically, what you need to survive, and any payments you’re required to make.
Even though I’m frugal, there were definitely things I cut down on in my budget so that I could continue making my normal student loan payments. I didn’t want to leave myself short just in case.
My bare bones budget included my monthly rent amount, utilities, debt repayment, gas, groceries, cell phone bill, savings that went toward needs (like paying taxes), and things of that nature.
I completely cut out personal care, any subscriptions I might have had, and any discretionary spending like eating out or shopping for clothes. Only the basics were in my budget.
I found that I needed around $800 each month to meet my basic needs. Under “normal” circumstances, my spending was usually over $1,000 per month, so that made a huge difference.
While having a bare bones budget can give you peace of mind, it also gives you a number to aim for when you’re just starting out. It can be really intimidating to start charging what you’re worth and figuring out how much to charge can be a nightmare. Having this number helps give you a guideline, and worse comes to worse, you might find that taking on a part-time job can help meet your basic needs in the meantime.
Are you considering quitting your job to pursue another opportunity? What would you add to this list?