Once you‘ve made the decision to leave your job you have some serious planning to tackle. Even though most of us have an unreasonable attachment to our jobs, even jobs we despise, leaving your job is the easy part. Once you’re gone from that living hell you need to know what direction you are going to take to improve your life. While it might be nice to think that you will just drift through life and do nothing, that isn’t a realistic outlook.
You need a plan and since you also need a roof over your head and food in your belly (among other things) the first thing you want to figure out is how much you need to cover your expenses on a monthly basis. I like to call this the monthly “nut”. You also need to figure out how long your current savings will last if you decide that you will be tapping into your savings.
The first question you need to answer is whether or not you have a budget currently. I sincerely hope your answer is yes! If not, stop reading this now and get to work on creating a current budget. Without a budget you have small chance of determining your income and expenses accurately.
If you did answer “Yes” to the budget question, congratulations! Your budget is going to be a valuable asset as you delve into the realm of changing jobs or careers.
Using Your Budget to Determine Your Monthly Nut
If you have a budget which you’ve been using for some time it should be quite easy to see how much you spend on a monthly basis. Do not make the mistake of using this number as your monthly nut number though. Now is a perfect time to fine tune your budget and get rid of questionable and unnecessary expenses.
You will also want to run some “what if” scenarios using your current budget. For example, it’s easy enough to remove your current salary from your budget and see where you will stand financially once you leave your job. This can be considered your baseline nut number. We aren’t done yet though. The next step will depend on what you are planning to do once you leave your job. Since I choose to pursue a freelance career working from home, I will use that scenario. If you are going to be taking another job or going back to school your calculations would vary accordingly.
Since I am working from home I was immediately able to remove some expenses and decrease others. Some obvious targets are money you spend on lunches and such, money spent on work wardrobes, and commuting expenses. Which reminds me; if you drive your own car to work currently and will be working from home after you quit, don’t forget to contact your insurance company and let them know about the change in your driving habits. It should net you a discount and if it doesn’t I recommend you look for a new insurer when your current policy expires.
Unless you are already working with a very tight budget I wouldn’t be surprised if you can drop several hundred dollars from your monthly nut just by dropping work related expenses. Now that you think you have your monthly nut, add 10% to the total as a buffer. It seems as if we always underestimate what we are going to spend and this will protect you against that eventuality.
Hopefully your monthly nut is now less than your expected monthly income from your new job or career.
What About Using Savings to Fund My Quit?
I strongly advise against using your savings to fund your quit date. Instead, you should have a separate savings fund that serves as buffer. For example, if you have calculated your monthly nut as $2000 you should create a fund that has $24,000 (one year’s expenses). This is in addition to your retirement savings and your emergency fund. I want to stress that this money is NOT a replacement for your emergency fund. Consider it your monthly “paycheck” for the next 12 months.
During the 12 months that I am depleting this account I like to maintain a second account for the following year’s expenses. This allows me to easily see if I can afford to give myself a raise next year. Be cautious about giving yourself a raise though. It is always substantially easier to increase your spending rather than decreasing it. A much better strategy is to try and maintain your living expenses and put any excess into your retirement or emergency savings.
That’s really all there is to it. To recap:
- Look to your budget to determine your current expenses
- Tweak the budget to decrease your expenses and determine your monthly nut
- Save 12 months worth of expenses prior to leaving your job
If you have done a good job estimating your expenses and have saved your yearly nut you will know you’re safe for at least the first year. Don’t rest on your laurels though! It is normal to take a break for a few weeks to recharge, but after that get to work with a will creating your new job free lifestyle!
Photo Credit: flickr Pauline Mak