Before you call it quits, assess your current financial position as the transition time to your next job or business could be short or long.
Why do we quit the comfort of a salaried job? Some want to start up and build something of our own. Some quit due to job dissatisfaction, lack of growth, or in search of better prospects. Whatever be the reason, quitting your job needs to be planned. Without a plan, the transition from employment to whatever lies beyond can have serious repercussions on your financial health. It is important to maintain financial stability so that the transition is worry-free.
Let’s look into how should you be financially ready before putting in your paper at current job.
Assess your current financial position
Before you call it quits, assess your current financial position. The transition to your next job or business could be short or long. But during the transition, you will need money to manage your immediate needs. For example, during the transition, you will lose your employer-provided health insurance cover. What if you were to require hospitalisation in the in-between period? Knowing your current financial standing helps you prepare better for the jump.
Build your emergency corpus
While you’re transitioning, your cash needs can be met with an emergency fund. Ideally, this fund should be 6 to 12 months of your current income. If your expected transition is longer, you will need a bigger fund. For example, if your current take home salary per annum is, say, Rs 10 lakh, it would be good to have savings worth Rs 5 to 10 lakh.
Clear your liabilities
If you owe money to any financial firms, clearing such liabilities should be among your top priorities before quitting your job. Your efforts should be focused on either to clear any outstanding liabilities or reduce it substantially. For instance, you may have a running vehicle loan, a home loan, or a personal loan. You should try to make pre-payments to clear off the loans. This way, you will save yourself from the pain of liabilities while you transition with limited income. This is also important from the point of view of your credit score: if your income in unstable and you’re unable to pay your EMIs, your credit score would fall and reduce your future borrowing potential.
Work on Plan B
You may have a Plan A, which is the big reason you quit your job. What if Plan A fails? Have Plan B ready. Get back to a job soon, work on a secondary business, take up part-time or freelance work, and do what’s necessary to get your finances in order.
If you have planned to quit your job without having anything substantial in hand, it is better to reduce your expenses in line with your future needs. You may like to switch to a cheaper apartment, have fewer outings and take public transport. Some simple compromises like these may help you in saving money for times like these.
Try to rework on your decision
Let’s say you realise that you’re financially unprepared and quitting may not be a good idea at this point. You can talk to your HR about your concerns with your job and see if they can address it to retain you.
Besides, you can discuss your move to quit your job with an experienced person or friends who took this call before you, and take tips on how it was managed by them.The writer is founder and CEO of BankBazaar.com