Leaving a thankless job to pursue a better opportunity can be rewarding, but it can also be financially scary. Money is one of the main reasons people stay at jobs they don’t like, even if they could potentially earn more elsewhere. The comforts of benefits, a guaranteed paycheck, and familiarity are understandably hard to give up.
Going through any job transition, whether it’s to start your own business, or to join a new company, is ultimately a risk. The easiest way to minimize that risk is to be financially prepared. Leaving your job at the right time—and under the right financial circumstances—is crucial. This is what you need to do to prepare for a job transition this year:
- Save enough to cover four to six months’ worth of expenses if you’re taking time off to job search.
If you’re planning to leave your job and you don’t have another one lined up, it’s important to have a robust emergency fund. A healthy cushion can allow you to take the time to search for the right opportunity. Vanguard advises that you should have at least three months of expenses in an emergency fund, but if you don’t know what your next step is yet, having additional money saved will help you avoid depleting your emergency fund while job searching.
- If you already have a new job lined up, save one to three months’ worth of expenses.
Even if you have a start date set at a new job by the time you give two weeks’ notice, it’s still best to have one to three months of expenses in savings. When you start at a new company, there may be delays in setting up your payroll. Depending on the timing of the pay cycle, it could be over a month before you receive your first check. If you have the money to cover a temporary gap in income, you can avoid running up a credit card balance or dipping into savings earmarked for something else.
- If you receive health insurance from your current employer, you’ll need to make sure you don’t lose coverage between jobs.
You will want to find out how long you can stay on your plan after you leave. For the interim period, you can purchase COBRA insurance, or purchase health insurance on the open market. When negotiating for your next job, you may be able to ask your employer to reimburse you for your COBRA payments until their plan comes into effect.
- Look into your new company’s retirement offerings and compare them to your former company’s benefits.
If your new company offers a higher matching percentage, you’ll likely want to take full advantage of it—otherwise you’re leaving money on the table. If they’re offering a lower matching percentage than your old company, you may want to raise your monthly contribution, in order to keep your retirement goals on track. Either way, discussing the implications of your new company’s benefits with an advisor can help you learn how your new job will impact your financial plan.
- Talk to your advisor about how to roll over your 401(k) from your old job.
You can either transfer the balance into a new 401(k), or roll it into a separate retirement account, such as an IRA. If your 401(k) balance is relatively low, you may be tempted to withdraw the cash, but remember there will be associated penalties. Ideally, you want to keep your money invested, so that it can continue to grow.
- If you are transitioning from a full-time job to owning your own business or freelancing, talk to your advisor about opening an IRA or a SEP account.
These accounts may offer similar tax benefits to a 401(k), although you will unfortunately miss out on matching contributions from your employer. Determine how much more you’ll want to save each month in order to make up this difference. Talk to your advisor about what steps you need to take to help ensure your retirement goals aren’t adversely affected by your job change.
- If you know you’ll have a gap in income between jobs, consider lining up a side hustle or freelance gig before you leave.
There are now more ways than ever to make extra money, and many of them allow you to work remotely. The income from your side hustle will ease the financial burden while you search for your next job or work on getting your business off the ground.
- Negotiate things other than base pay.
Almost everything is negotiable. When accepting a new role, be sure to negotiate items outside of base pay. For example, many employers will make up for lost bonuses given they can be sizable percentages of an employee’s total compensation.
John Switchenko is an associate relationship manager in CIBC Atlantic Trust Private Wealth Management's Boston office, with more than 10 years of industry experience. In this role, he works closely with senior relationship managers to provide comprehensive client service, portfolio management, and custom reporting of accounts for high net worth individuals, families and foundations.