Planning to Quit Your Job? Here’s How to Get Your Finances in Order First

In the wake of the pandemic, “the great resignation” is now underway, with people leaving their jobs in record numbers. But do they have a safety net in place? In this video clip from “The 5,” recorded on Sept. 24, contributors Brian Withers, Jason Hall, Neil Patel, and Demitri Kalogeropoulos talk about how much savings you should have in place and other things to consider before you quit.

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Brian Withers: It’s been called the great resignation. This has been in the news for a month or so now as many workers are just up and quitting and leaving without another job, whether they are forced to get back in the office or just have had enough and want a new career path. There’s a recent Wall Street Journal article that talks about how to prepare your finances for this event. I’ll stick it in the Slido so you can read that. But I wanted to ask you, three experts, what advice would you have for a friend or family member who asked you what they should do to prepare to quit? Is there a financial advice you’d give them or other advice? Jason, I know you’ve walked away from a big job, so I’m going to put you on the spot first.

Jason Hall: Yes. I did this almost 10 years ago now to start writing for the Fool, but I did not do it until I had a margin of safety in place. That margin of safety in this case, my wife took a full-time job at the company she works for now, which immediately meant that we’d be able to have healthcare and other benefits through her. We had that margin of safety in place for me to walk away from being the primary breadwinner and to take on the risk as a freelance writer. I had no track record as a writer and I made the jump. Obviously, it’s paid off really well. A big part of the reason it paid off is that I wasn’t stressed about health insurance. I wasn’t concerned. I didn’t also run out and get another part-time job or some gig to bridge the income gap, then I wasn’t able to focus fully on the thing that I was going to do. That’s the first advice I would give to anybody, is make sure you have a margin of safety in place so you can really give what you’re trying to do a shot, if you’re trying to build something on your own. If you just want to better job, having a job is incredible leverage, you’re giving up that leverage. If you’re going to go out there and compete against other people, you’re far more attractive and you have more negotiating power if you keep your job until you find your job.

Neil Patel: I think you make a great point, Jason, and that’s what I was going to emphasize is the margin of safety and the flexibility is absolutely paramount. When you’re at that point quitting your job or your mentality is, the grass is always greener, so you think of yourself on the other side and how great things are going to be, and you don’t really give yourself that cushion, that flexibility for unexpected things that happen. I think setting yourself up for that is the most important thing. The emergency fund, thinking of all of the new costs or expenses that you’ll have, the lower income you’ll have, thinking about all those things before you do that I think it’s absolutely crucial. You hit every nail on the head that I was going to say, Jason. Definitely, margin of safety is the most important thing and think through your entire budget line item by line item to make sure you are prepared and some for the uncertainty that that’s going to happen going forward.

Demitri Kalogeropoulos: Totally agree with you guys. I guess the rule of thumb I would’ve like is just generally to have around 3-6 months worth of expenses in cash just all the time available as a cushion. But if you’re making a decision like this where I’m giving up a steady cash flow for a risky situation, I think you might want to think about maybe doubling whatever that number is for you. The other thing I would tell the person, if you can find a way to try this new thing, if you’re going into a new career or you’re tired of this industry that you’re in and you want to give another one a shot, I don’t think it’s ever been so easy to try that. Give it a shot before. They call it the gig economy. There are apps on the phone that allow you to be obviously a taxi driver if you want for a few weeks, you can be a bed and breakfast manager with Airbnb for a while, you can be a chef. There’s hundreds of different things you can try and have clients. I would advise, give that a shot, give it some time to figure out, do you like it? You might hate it or it might tell you something about different ways you want to take that career. I believe I had a similar story to Jason’s, but I believe I wrote part-time for the Fool for a couple of years before I quit my day job. At that point, I was very comfortable, I felt good about what I was doing and I thought it made sense to take that leap.

Withers: Yeah. You guys are all bringing great points to the table. I’m just going to underscore the piece on the safety fund, the emergency fund. In 2009, I was working at Dow and in early March of 2009, I got laid off, which ended up being the low point of the market for those couple of years. I ended up selling stocks because I didn’t have an emergency fund to cover expenses and I didn’t know how long I was going to be out of work and we ended up moving from Nashville, Tennessee to San Antonio, Texas. Not only in order to get another job, we have to sell the house, scrimp expenses, we had to move across the country too. It was a traumatic experience. I think you should at least cheers to go in and try new things.

Kalogeropoulos: Yeah, absolutely.

Withers: I think, absolutely. I think this is more than any other time that I’ve seen, this is an absolutely great time to go try a new direction for your career or whatever. But do it with a little foresight and don’t leave yourself completely exposed and put yourself in a stressful situation where you are uncomfortable financially.

Hall: It’s not a good idea to walk on a tightrope for the first-time without a safety net if you’ve never been on a tightrope before.

Withers: [laughs] Yeah, here we go.

Patel: Treat it like your in investments, it’s a calculated risk.

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