• Steve Coker, CFP

Preparing for a job change


A record 4.3M Americans quit their jobs in August. There are many reasons for the shift: record high job openings promising better opportunities, mothers staying home with children who cannot attend in-person school, workers refusing to comply with vaccination mandates, more attractive government benefits allowing job flexibility, and more. Despite a strong jobs market, there is a significant shift in where and how Americans work. If you are considering a move or would like to have the flexibility to quit your job, it helps to be prepared. Here are 9 things that you can do now to prepare for a job change.

1. Build a cash reserve

A cash reserve is always a good idea, but when you have a period of uncertainty or transition having a little extra cash on hand can give you a lot of peace of mind. Reevaluate everything in your budget to cut the fat and start adding to savings. This also means delaying any large purchases – so keep the old car for now. Cash gives you time to find the next job.


2. Review your health benefits

Providing for health care once you have quit your job can be one of the most difficult and expensive challenges. If your employer has 20 or more employees, the company will be required by federal law to offer you the option to pay for an extension of your existing coverage. This is known as COBRA. You will be eligible for COBRA even if you quit your job. Unfortunately, COBRA can be very expensive. If your spouse also has health coverage, review the enrollment provisions. Generally, a spouse changing jobs is a qualifying event, which allows the immediate addition of a family member without having to wait for the annual enrollment period. However, this is not a given. If you are planning to quit, consider moving the entire family’s health insurance to your spouse’s plan during open enrollment.


3. Review your retirement benefits

Your 401K is best used for your retirement, not for job changes. If your cash reserve is not where it should be, then it may be best to reduce the amount of money you are putting into your 401K so that you will be prepared to quit. While you build your cash reserve, consider reducing your contributions to only the amount of your company match. Secondly, know your options for your 401K. For example, there are exceptions that will allow you to withdraw 401k funds to pay for COBRA, or depending on your age, there are exceptions that will allow to get access to your funds before the normal 59.5. How you pull out the funds matters, so consult with an advisor before you move your retirement accounts.


4. Pay off that 401K loan

If you already have a cash reserve, consider paying off your 401K loan. Why? If you leave your company the entire balance of your 401K loan is often due within 60 days. This may not be a problem if you are 55 years old or older in the year you leave the company. But if you default on the loan while you are younger the principal balance will generally be taxable income to you and you will be accessed a 10% federal penalty for early withdrawal. This is not a disaster, but you should avoid it if you can. Pay this debt down first. If you have any questions about the taxability of the default, talk with you your HR department, or consult with an advisor.


5. Pay down debt

Debt can make you feel like you are stuck, a slave to the paycheck to keep making the debt payments. Create a plan to pay-off the debt while you are still working. I recommend paying off the accounts with the lowest balances first. Not only can this be very motivating, having fewer monthly payments can really help with cash flow while you are looking for a job. Also, consider accepting any overtime at your current job to help pay off those loans. While it may seem odd to work more so you can quit, having less debt can give you the freedom to change jobs.


6. Review your mortgage

If it makes financial sense, consider refinancing your mortgage to get the monthly payment down. The focus during this time is reducing your monthly outflow, so if you have a 15-year mortgage consider moving to a 30. If you have been making extra payments, consider adding to your cash reserve until you complete the job transition. Don’t get me wrong, paying off the mortgage is a good idea, but extra cash gives you the flexibility to wait for just the right job. Remember that refinancing while you are out of work can be difficult or impossible so complete the refinance before you decide to quit.


7. Consider opening a Home Equity Line of Credit

If your mortgage is already in good shape, consider opening a Home Equity Line of Credit (HELOC). Most banks will allow you to open a HELOC at little to no cost, and you don’t have to borrow money unless you need it. Again, once you have quit your job this option may be closed to you, so it is important to set up a HELOC before the crisis hits. Don’t get me wrong, I hate debt, but having the flexibility to get short term cash while you are out of work can buy you some more time to get that next job.


8. Get organized

Setting up a proper budget and living within your means are consistent themes when it comes to financial advice. If you haven’t set up a budget, now is the time to get serious. One of my favorite tools is Mint.com. It is a free website that helps you track your spending. Once you can track your spending, you can be intentional about where you spend.


9. Don’t stress

Job changes can be stressful but can also lead to new and better opportunities. By preparing in advance and making the job change on your terms you will have the time to explore new jobs that will put you in an even better place.

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