Want to Quit Your Job? Read First This So You Don’t Go Broke

What to figure out before you take the plunge

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While the headlines over the next few days will be loaded with stories about the March employment data, and what it says about President Obama’s economic policies, there is an interesting trend taking place in the Labor market that may give us an even clearer picture of what’s really taking place in the hearts, minds, and bank accounts of American workers:  More people are quitting their jobs.

The latest statistics from the Labor Department data finds that 2.8 million Americans quit their jobs in January,   the highest number since 2008.

“The fact that so many people are leaving their jobs is a sign that they are not only ready to take chances, but more companies are coming to them.  In a nutshell, many people are quitting their jobs because they have offers and are confident they can find new ones,“ says John Challenger, labor market analyst and CEO of Challenger, Gray, and Christmas.

We’re also a bit more battle tested.  “We’ve been through a very difficult recession and we’ve survived it.  This is giving workers confidence — particularly Millennials — many of whom had to be creative about their finances for years because they couldn’t find jobs after college,” he adds.

If you’re thinking of seeking another employer, think about the following before you pull the plug and walk out the door.

Consider why and how you’re leaving: “Think of why you’re leaving the job, and ask yourself if it’s really true,” says Rick Kahler, CFP, president of Kahler Financial Group and author of Conscious Finance, “Often times it isn’t the job that’s the problem, but it’s the person that’s the problem.  The same issues will follow to the next position. Also, consider the manner in which you leave. Getting a reference from a past employer can be important. If at all possible, try not to burn bridges and leave on good terms,” he adds.

1. Estimate how long your job search will take: In addition to doing your homework on the state of the job market in your field, through research in industry trade publications, networking, etc., be sure to have a good sense of your individual prospects.    Have you had offers?  Do you have relationships with other companies?   Most important, when you come up with that time frame, double it.   Job searches generally take at least twice as long as you expect.

2. Consider your savings: Most financial experts say you should have enough in an emergency account to cover at least 3 to 6 months worth of expenses.  Again, take that number and double it.  “The reality is you’re not going to spend less that you would if you were working.  You may cut back on commuting costs, but you’ll spend more on discretionary things,” says Greg McBride, chief financial analyst at Bankrate.com.  “You have to be realistic and realize you’ll have more time on your hands and want to do things like meet people, network, and travel,” he adds.

3. Life without benefits (Healthcare):The days of an employer contributing to your healthcare and retirement will be gone.  When employers offer health coverage to their employees, they usually pay part of the monthly premium for their employees.  Your healthcare costs will skyrocket once you leave your job.  Be sure to research all of your options and factor those costs into your budget.

4. Life without benefits (Retirement): No employer means no 401(k) or company match.  In addition, you need earnings to make Individual Retirement Account (IRA) contributions in a given calendar year.  “If you know you’re going to quit, spend the first 6 months stuffing as much money as possible in your retirement accounts as you can,” say Bankrate’s Greg McBride.“Someone who is going to quit in July for example, can spend the first 6 months of the year maxing out their retirement accounts,” he adds.

McBride and others point out that if you’re quitting your job to start your own business, there are other considerations, but many of the same rules apply.   In addition, to covering you’re living expenses, however, you’ll also have the expenses of getting a new business off the ground.