Whether you are a millennial with ADD or a parent going through a mid-life crisis, it’s natural to want to do something new after a while. I began to itch after 10 years with one company myself.
Thanks to a change in loyalty attitudes, it’s become common to chase a new job. No longer do we stay at one firm for decades and retire at the age of 65 with a pension. Only around 10% of private companies offer pensions, leaving us to fend for our own retirement with woefully inadequate 401Ks and IRAs. With a smaller pot at the end of the rainbow, we’re more inclined to search for better opportunities.
Thanks to the internet, we can easily see what else is out there. The internet has also allowed us to work remotely for someone or for ourselves if we have our own website. If everybody had the skills to harness the internet to make a sustainable living, I’m pretty sure there would be a mass exodus from the traditional workplace!
It’s easy to get starry eyed and think the grass is always greener on the other side. My intent for this article is to help you make sure you don’t take the leap of faith and land on a bunch of jagged rocks. I’ve seen way too many people online and offline detonate their lives because they did not look down below.
15 THINGS TO CONSIDER BEFORE QUITTING YOUR JOB
1) What are you really unhappy about? You might be complaining about your work hours, or your mindless work, but perhaps those are only excuses to what’s really bothering you. Lack of recognition or no correlation with reward and effort are the most common reasons people want to leave their jobs. If you do not feel you are being treated fairly, you should have a heart-to-heart with your manager to discuss your concerns. Your manager can’t read your mind. Maybe you’re feeling a little envious of your friend for being financially free so early and you want to make the move as well. Envy doesn’t lead to any good.
2) How large is your safety net? The higher the cliff you jump off, the greater the chance you will die upon landing. If you have a high paying job with kids and a mortgage, you better have a massive nut to take care of you just in case your new occupation fails. I recommend everybody have at least 12 months worth of living expenses before quitting. That one year of savings should be in a liquid account such as savings, CDs, or your brokerage account. Consider an umbrella policy and life insurance to protect your family. Insurance becomes that much more valuable once you decide to make a change.
3) Calculate your monthly cash burn rate. You can’t figure out how big of a safety net to accumulate if you don’t have a reasonable assessment of your monthly cash burn rate. Calculate the average over the past 12-24 months to get a good idea of the swings. Use the average of your three highest monthly burns and multiply by 12-24X to get what you really need. It’s much better to be safe than sorry.
4) Calculate your passive income streams. You might be surprised at home much side income you are actually generating in addition to your day job income. All those dividend and interest payments add up, for example. It’s hard to know how much you actually earn from dividends and interest because most people elect to have the proceeds reinvested in their portfolios or CDs. There is no penalty for electing to have such payments transferred to another account for use. Obviously, if your passive income streams can fully fund your highest monthly burns forever, you are set for life. Just make sure you don’t start having a lot more wants.
5) List out all the things you plan to do. There might be only one thing you want to do as soon as you quit your job, but it’s best to list out all the things you can and may need to do. Nothing seldom goes according to plan. You need a backup for your backup. When I quit my job, I wanted to focus my attention full-time on my online endeavors. In the meantime, I also wrote about my desires to do a PhD, work for a competitor, or join a startup. There are exogenous variables out of your control which can quickly change your plans.
6) Think about others. It’s easier to quit your job if you are single. At some point, it stops becoming about you, but more about your children or spouse. Once you start considering the lives of others into your job quitting equation, you become more vigilant in making sure all your files are in order.
7) Calculate your net worth. Sign up with Personal Capital, a free financial tool that automatically tracks your net worth, analyzes your investment portfolios for excessive fees, and helps you plan for your retirement. Once you link up all your accounts, the online software easily allows you to get a holistic view of your finances so you can better optimize. Take advantage of free financial tools regardless of your job situation! I’ve been using Personal Capital since 2012 and have seen my net worth sky rocket since.
8) Check out the charts. The following chart is my recommended savings rate and amount one should have at various stages of their working lives. Of course, the amounts depend on the lifestyle you want to live. Use my chart and other charts as guidelines on where you want to be. In the end, the choice is yours.
9) Will a sabbatical do the trick? If you are suffering from burnout, consider taking a one to three month long sabbatical to recharge. There should be a sabbatical policy for those who’ve spent at least three to five years at their jobs. The sabbatical will provide you a good idea of what you can do with your free-time, while practicing to live on less.
10) How open is the Bank of Mom and Dad? You may be lucky to have parents who welcome you with open arms as a 35 year old male, or you might have a dad who will call you a deadbeat loser for quitting a job and failing. Whatever the case, you must carefully assess the worst case scenario of living off your parents in their golden years. If they have multiple properties and are financially secure, excellent. If not, perhaps you should consider trying to help out your parents more instead of being more of a burden.
11) Are you willing to work at McDonald’s? There are over three million jobs vacant in America despite a 7.8% unemployment rate because of a skill mismatch and too much pride. If everything goes to hell, are you willing to take a job that you think is beneath you to survive? Are you ready to be discovered by old co-workers you once hated who now see you working a minimum wage job?
12) What time of year is it? If it’s October, November, or December, you are taking a bigger risk by quitting than during the other months of the year. The first reason is you’ve given the company the majority of your time with the minimum possible compensation since you are walking away from a potential bonus or promotion. The second reason why it’s risky to quit in the 4th quarter without another offer is because very few companies hire in the 4th quarter! Budgets are spent and hiring freezes are on. What manager wants to blow their full year budget and hurt their bonuses with a new hire who will provide the least return during the year?
13) Do you have something else lined up? The best scenario is having something lined up as soon as you quit. I call this double or triple dipping. Hopefully, you’ve signed an iron clad contract for your new employer to hire you once you do quit, otherwise, you could be screwed. Have an attorney look over your contract and try and see if you can receive a signing bonus for your commitment. If you don’t have something lined up, start cracking.
14) Take your time to quit. Some of the worst decisions happen because they were not well thought out. I cannot tell you how many times people have kept their job frustrations bottle up inside only to announce one day they quit. They burn bridges, get no severance, get no health insurance, and don’t even get the opportunity to collect $1,800-$2,000 a month in unemployment insurance paid for by the state and company for at least 26 weeks. My newly revised book provides a game plan for people who are willing to spend three to six months learning their rights, building the right relationships, and ultimately negotiating a life saving severance package.
15) Talk to as many people who’ve quit as possible. The only way to know something without having experienced it yourself is by asking someone else who has experienced what you plan on going through. The goal is to get a good idea of what you’re getting yourself into.
QUITTING IS THE EASY WAY OUT
Although quitting your job can be terrifying, quitting is actually quit easy compared to finding something awesome new to do that can also provide a sustainable income. Many of my friends with Masters degrees have spent over six months looking for better opportunities with none to be found. Don’t be overconfident in your future.
If you can just take the time to plan your departure through the above steps, I promise you will be much richer, much happier, and way less stressed. I never would have imagined engineering my layoff could be so lucrative. But through research and a month and half long negotiation process, it’s incredible to have a long runway to pursue my online endeavors with little financial stress. Plan and plan some more!
START AN ONLINE BUSINESS
Consider being your own boss. It’s been over seven years since I started Financial Samurai and I’m actually earning more online than I did at my day job as an Executive Director for a major financial firm. It feels amazing not having to report to anyone, set an alarm clock, or inch my way through maddening traffic.
I never thought I’d be able to quit my job in 2012 just three years after starting Financial Samurai. But by starting one financial crisis day in 2009, Financial Samurai has allowed me to permanently break free from Corporate America. If you enjoy writing, creating, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog like mine in 15 minutes. It’s imperative everybody at least owns their brand online. Why should Facebook or LinkedIn get rich off you? At the very least, you can find a lot more work and consulting opportunities once you’ve launched your site. Who knows, you might make a lot of money online where you never have to work again!
You never know where the journey will take you. The things you do now may change your life for the better.
Updated for 2017 and beyond.