Quitting your job to pursue other interests is a major life decision that requires careful planning and preparation. Many people dream of leaving their 9-5 to travel the world, launch a business, or simply have more freedom in their daily life. However, quitting your job isn’t something to take lightly – you need to make sure you’re financially ready before handing in your resignation.
In this article, we’ll discuss the essential factors to consider when deciding if you have enough savings to quit your job. We’ll go over how much money experts recommend having saved, how to estimate your post-job monthly expenses, additional sources of income to supplement savings, and more. While the specific dollar amounts will vary based on your unique situation, you can follow the steps below to determine if you’re truly ready to take the plunge into joblessness.
How Much Savings Do You Need to Quit Your Job?
Most financial experts recommend having at least 6 months to 1 year of living expenses saved before quitting your job without another one lined up. Here are some general guidelines on savings based on your current income:
– If you make under $50k per year, aim for 6 months of expenses saved
– For an income between $50k-$100k, target 9 months of expenses
– Over $100k, you should save a full 12 months of estimated post-job costs
Having this sizable emergency fund provides a cushion in case it takes longer than expected to find your next gig or get a new business off the ground after quitting. It also covers unexpected costs like medical bills in between jobs when you won’t have employer-subsidized healthcare.
Let’s take a deeper look at how to estimate your post-job monthly expenses so you know exactly how much you should have banked before taking the leap.
Estimating Your Post-Job Monthly Expenses
To determine how large your savings needs to be, you first need to have an accurate estimate of what your monthly costs will be after leaving your job. Here are some major expenses to account for:
Housing Costs
Housing is likely your biggest fixed cost. Make sure to include:
– Rent or mortgage payments
– Homeowners insurance
– Property taxes
– Utilities like electricity, water, gas, and cable/internet
– Any homeowner association or condo fees
Transportation Costs
– Car payment and insurance
– Gas for your vehicle
– Public transportation fees if you use mass transit
Food
– Groceries
– Restaurant meals and takeout
Self-care
– Healthcare premiums and out-of-pocket medical expenses
– Medications and prescriptions
– Gym membership
Family Obligations
– Child support
– Alimony
– Tuition payments for kids
– Allowances
Debt Payments
– Student loans
– Credit card minimum payments
– Personal loans
Discretionary Expenses
While you’ll likely need to cut back, be sure to account for:
– Entertainment like movies and concerts
– Vacation and travel
– Gifts for loved ones
– Shopping and personal items
Once you’ve estimated these monthly costs, add them all up to get your total post-job living expenses. Multiply this by the 6-12 months of savings you need based on your previous income level. This will tell you your savings target.
For example, if you made $75k per year, you should aim for 9 months of living expenses saved. If your estimated monthly costs are $4,000, you need $36,000 in the bank before you can safely quit your job.
Use this table to help estimate your monthly post-job expenses:
| Expense Category | Estimated Cost |
|---|---|
| Housing | $1,500 |
| Transportation | $350 |
| Food | $500 |
| Self-care | $250 |
| Family obligations | $200 |
| Debt payments | $600 |
| Discretionary spending | $300 |
| Total Monthly Expenses | $3,700 |
This table allows you to see all your estimated monthly costs at a glance. Fill in the amounts relevant to your personal situation.
Supplementing Savings With Other Income Sources
In addition to having significant savings, lining up alternative income streams can provide extra financial cushion when leaving your job. Some options include:
Freelancing
Start freelancing in your spare time while still employed to build your portfolio and client base. This provides continuity of income while making the jump into self-employment. Expand your client roster before fully transitioning from your current job.
Investment Income
Generate passive income from investments like rental properties, dividends from stocks and funds, interest from bonds and high yield savings accounts, or income from a 401k/IRA. This can help cover some monthly bills.
Monetizing a Side Hustle
Turn a hobby, skill or passion project into a side business. Use nights and weekends to start something you enjoy that brings in extra cash. This provides a source of funds while transitioning into entrepreneurship full time.
Part-Time Work
Consider taking on part-time work or freelance gigs in between permanent jobs. This allows you to leave a previous role with some income still coming in. Part-time work may also offer benefits like healthcare coverage to reduce expenses during your off period.
Having one or more of these supplemental income streams can minimize the amount you need to withdraw from savings each month. This extends your runway while getting a new venture or career path off the ground. Even an extra $500-$1000 per month from side income sources makes quitting a job much less risky.
Additional Tips for Quitting Your Job
Beyond having adequate savings and supplemental income, here are a few other tips to smooth the transition away from traditional employment:
Have a Business Plan
If becoming an entrepreneur, create a business plan detailing how you’ll generate income and cover expenses. This helps prove the viability of self-employment and ensures you have thoroughly planned ahead.
Line Up Healthcare
Don’t risk going uninsured – look into COBRA through your former employer or private individual health insurance plans well in advance.
Cut Non-Essential Costs
Review expenses carefully and trim any excess spending before quitting to make savings last longer. Cut the cord on cable, suspend gym memberships, minimize discretionary shopping and dining out.
Make Connections
Use your remaining time in your current role to build relationships and grow your network. This helps increase the chances of securing freelance gigs, clients, investors, or new job opportunities.
Check Your Emotions
It’s easy to get swept up in the fantasy of quitting. Make sure your reasons are logical and avoid basing the decision on emotions or burnout. Give it some time and space before committing to be certain.
Key Takeaways on Quitting Your Job
The amount of savings required to quit your job largely depends on your income level and monthly expenses. Aim for 6-12 months of living costs saved before taking the leap. Supplement savings with other income streams when possible. And carefully plan how you’ll generate income, reduce spending, and stay insured when you do leave your job.
With adequate savings and preparation, you can make a strategic, responsible exit from employment. But quitting your job should not be done on a whim without financial planning. Determine what’s truly right for your situation before joining the ranks of the happily jobless!