With many businesses asking employees to return to the office this fall (if they haven’t already) lots of us are asking the question — how can I continue working from home? If you’ve hit a dead end with your employer over negotiating return-to-work policies perhaps you’re one of the millions thinking about quitting as part of the so-called “Great Resignation.”
Surveys show anywhere between 25%-40% of employees are considering leaving their jobs this year. In my work with clients, I’ve noticed a trend. More than ever, people are questioning their life decisions, the city they live in, the type of home they have, and what they do for work.
I’ve had a number of clients take a sabbatical by choice and consider retiring earlier than they had originally planned in the last two years.
But with so many people considering leaving their current job, this financial planner brain immediately goes to, “Can you afford to quit?” Savings accumulated during the last year and a half with lower-than-average expenses have many people asking this question for themselves.
After more than 10 years working in corporate roles I, myself, had this dilemma, and in 2015 chose to leave my career for a 6-month sabbatical without having a plan for what came next. It all worked out and lead me to found North Financial Advisors. I’m the last person that will advocate for you to stay in a job you hate for any length of time beyond what you have to. As such, I wanted to put together a checklist of three main things to think about in your budget so you can determine whether you can afford to quit your job.
Keep in mind: state and federal unemployment payments are off the table unless you are laid off. Hopefully you have some emergency savings to rely on because it’s not always easy to find the perfect fit dream replacement job in a few weeks. Having cash will be key to softening the financial blow of not having income.
How to Pay for Health Care
Most people list healthcare as their number one fear about leaving the workforce temporarily (or for early retirement). Health care is expensive, but it’s even more expensive to go uninsured if something were to happen to you. You will be eligible for COBRA if you quit your job, so you won’t have to go without health care. But many people don’t realize how expensive COBRA coverage is. Your employer typically subsidizes between 50-90% of your health care costs. It will come as quite a shock if your health care payment doubles or even triples when you leave.
So, what are the alternatives? First, if you think this is going to be a very temporary lapse in employment and you’re not actively being treated for anything, you can wing it and go without paying for healthcare…temporarily. A little known fact is that COBRA can be elected retroactively for up to 60 days after you terminate employment. So, if you leave your job to find something that’s more suited to your life, your schedule, etc. and end up not needing to be treated for anything for 60 days and then start a new job with healthcare coverage on the 61st day, you can successfully avoid the cost of health care for those two months. If you, for instance, had an injury during that time, you can retroactively elect COBRA, pay the back-premiums owed and it will be as if you never stopped having insurance coverage. That’s a nice tip to keep in your back pocket.
However, if your planned break from employment is going to last any longer than 60 days, then you should start looking at alternatives. One alternative is to see if you can be covered by a spouse or live-in domestic partner (depending on their employer’s rules).
Another option would be to compare the cost of getting health insurance from the Affordable Care Act health care marketplace. Often, but not always, you can find cheaper insurance coverage on the exchange, but each state is a little different.
Once you’ve figured out how much you have to pay for health care, these costs should be rolled into your monthly living expenses needs estimate as discussed below.
How to Plan For Your Living and Lifestyle Expenses
During the pandemic, many of us discovered how little we can spend when we don’t have a commute, don’t need to pay for dry cleaners, don’t go out, and don’t travel. When you quit your job, you should use this as a baseline to figure out your minimum living expenses. This will include groceries, utilities and bills, as well as rent. Some people are fine keeping expenses dramatically low. Others will want to take advantage of the time off from work to do more. But the bottom line is, you don’t have to have months of your full salary saved, you merely need to cover your monthly expenses via savings.
Now that the world is opening up a bit, you’ll want to budget for at least some of the fun stuff. Lifestyle choices will come into play here. Perhaps there’s a trip you’ve wanted to take, but never had enough vacation time. Perhaps there’s a training you wish to take that will help you when you re-enter the workforce. Or maybe there’s a hobby you’d like to take up.
All of these cost money. So, spend some time thinking about how you’d like to spend time during your time off from work, and then figure out what all that will cost. Roll these into your monthly estimates.
Side note: Resist the urge to over schedule every minute of your time off with things to do even if they are fun things. There’s huge value in having unstructured time for the creative side of your brain to explore things. I dive into this extensively in my book, The Resiliency Effect.
Once you’ve figured out your baseline living expenses and given yourself some buffer to cover fun lifestyle expenses, add all those up. Establish a monthly “run rate” which is the average monthly spend during your time away from work. Then you can calculate how long your current cash will last by dividing your total cash by your monthly “run rate.” Do you have just one month covered? 3 months? Or more? Knowing this run rate will give you confidence about whether you can truly afford to leave your job.
How to Plan The Return To Work
For most of us, new jobs don’t just fall into your lap. It takes time to dust off and edit the resume, job search, reach out to contacts and start the interview process. Hiring timelines for employers can last 60 days or more depending on your industry and role. If you don’t want to put yourself in the position of having to “settle” for the first job that comes along, it’s a good idea to plan to cover your living expenses during this “transition time” while you’re actively job hunting. Based on my experience working with clients, realistically finding another job can take several months, maybe even 6 months.
I would recommend having at least the length of time you plan to take off from work whether it’s weeks or months, covered in cash. Plus, I’d recommend having about 6-12 months of your personal expenses covered AFTER your break ends because it can take time to ramp back up to whatever you do next. Most people forget about this ramp-up period during job hunting. Once you get a new job, you should focus on rebuilding your cash savings for a period of time so that you’re covered in case of emergency.
Hopefully this got you thinking about some things you should budget for if you’re planning to quit your job. If you’ve got these three things taken care of, you’re actually in really great shape financially and should feel good about leaving a job that doesn’t suit you.
If you don’t have all of these covered just yet, my next question would be, how can you get the feeling of “quitting your job” without actually quitting? What would it be like to ask for help with some of your responsibilities? Ask your boss for a personal day or partial workday day here and there? Intentionally reduce some of your responsibilities (home or work) on a temporary basis? Prioritize unstructured down time? Sometimes making adjustments like these can help us through a rough spot.
What do you think? Would you plan for anything else when considering quitting your job?