Buzz
Imagine you’re fed up with your job and ready to quit, even without another one lined up. To get by, you’ll need money to cover your living costs—but how much exactly should you save?
Sadly, quitting could disqualify you from unemployment benefits, meaning you’ll need a significant amount of savings before you can turn in your resignation or walk out. That’s why leaving without another income plan isn’t ideal, though it does happen. Here’s how much you’ll need to make it work.
How Much You Need to Save Before Quitting Your Job
While there’s no universal consensus, financial experts often recommend saving six to twelve months of living expenses, in addition to your emergency fund. If you’re in a skilled profession, you may want to aim for twelve months of expenses, as the hiring process can take months rather than weeks in certain fields.
Of course, saving six to twelve months’ worth of expenses is a significant amount, but that’s because you likely won’t qualify for unemployment benefits if you voluntarily quit unless it’s for a valid reason like unsafe working conditions. Consider cutting back on expenses too—it’s much easier to quit if you can reduce costs, like by moving in with your parents or getting roommates, for example.
Be aware of hidden expenses
To determine how much you’ll need, list all your monthly costs such as rent, food, and bills. Don’t forget about the additional costs for health (and possibly life) insurance if you’re not already covered. A basic Obamacare plan can set you back around $300 per month without any subsidies—including a COVID-relief subsidy that brings the cost to $0 if you’ve received unemployment in the past year.
Another cost to consider is the impact of missing out on retirement savings, particularly if your current employer matches 401(k) contributions. Skipping a year of contributions could cost you tens of thousands of dollars in lost retirement savings, which means you might need to make up for it later or delay your retirement. (Withdrawing early from retirement accounts is also not advisable, mainly due to penalties).
The key takeaway here is that it’s wise to avoid resigning from your job without securing another position beforehand, as the timing of finding a new job is uncertain. If you decide to take this step, ensure you have enough savings to cover at least six months of expenses, or ideally more.
It’s important to refrain from quitting your current job without having another one lined up, because you can’t predict when you’ll find a replacement. If you choose to go ahead with this, make sure you’ve saved enough to cover at least six months’ worth of living costs, if not longer.
