Many of us have reassessed our priorities during the pandemic, whether it is seeking a better work-life balance or even another job or career. More than half of American workers are looking for new jobs in the next year, according to a new Bankrate survey – and for groups disproportionately affected by the pandemic, such as Gen Z, Millennials and blacks, natives and people of color (BIPOC) workers, this figure is even higher.
This wave of potential job changers is called “The Great Resignation”. If you are part of this changing tide, the real question is: are you financially ready? Whether your goal is to change jobs, change careers, or start your own business, here’s a checklist to help you assess whether you’re ready to take the plunge.
Building a financial cushion (aka emergency savings)
A recent study found that 40% of American adults don’t have enough non-retirement savings to cover even a month of current expenses, and less than a quarter have cash savings of more than three months of their family income.
This can be a problem because, according to the Bureau of Labor Statistics, it takes about four months for job seekers today to find a new job. While this time frame may vary depending on your role, location, and industry, you should be prepared to cover your living expenses for at least that amount of time, and preferably longer.
In other words, if you plan to quit your job in the next year, start building your emergency savings now. We all know life doesn’t always go as planned, so when changing careers, it’s better to have more money than you think you need rather than find yourself stuck. More and more, employers are starting to offer access to financial advice to help you understand where you stand and how to start meeting your short and long term financial goals, including building your emergency savings. .
Reassess your budget or create one
Fortunately, more and more people are taking an interest in their finances and thinking more strategically about achieving their goals. According to the Debt.com 2021 Budgeting Survey, 80% of Americans say they have a budget, which is an improvement from just 68% two years ago.
However, your budget, like a financial plan, should be personalized and flexible, able to grow with you as your needs and circumstances change. Be realistic: your budget should be designed for where you are today, not where you were several years ago or where you want to be six months from now.
Start by re-examining. Look for ways to cut your expenses, take advantage of untapped benefits in the workplace with your current employer, or find a “side activity” to help you save extra money. Your current job may also come with digital tools and access to advice that can help you get a more accurate picture of your current financial situation and needs.
Know your debt
A key part of preparing for a career leap is making sure that you are on top of your debt, not only what you still owe on all of your credit cards, student loans, mortgages, personal loans, etc., but also the interest rates you’re paying on each account.
When it comes to debt, remember that what you don’t know can hurt you. Almost half of Americans don’t know the interest rate they are paying on their credit cards. And a quarter don’t know their mortgage rate. And one in five can’t quote the interest rate on their student loan.
It’s not a demographic you want to belong to. Check your statements — find your current Annual Percentage Rate (APR). Are you making minimum monthly payments or paying back more? How much of your payment goes to principle and how much to interest?
Explore options for consolidating or paying off your debt: Reducing your debt can give you more financial leeway and help you overcome surprises that might arise when changing jobs. Again, your current benefits can help give you a better idea of your current financial situation.
Don’t forget your retirement savings
One of the biggest mistakes new hires can make is forgetting their old employers’ 401 (k) plan. Capitalize recently reported that millions of people forget their 401 (k) plan each year when they leave for another job – and the average balance of those “lost” 401 (k) plans is $ 55,400.
While keeping your 401 (k) invested in your former employer’s plan may be the right choice for some people, be intentional in weighing your options. Depending on your age, retirement goals, and investment options, a previous employer’s plan may not be right for you. If you’re considering changing jobs, be sure to weigh your retirement readiness – how much you’ll need to save to live the kind of life you want after you’re out of work.
If you’re unsure of how to assess whether you’re on the right track with your retirement savings, or whether consolidating all of your retirement accounts makes the most sense for you, it may help to consult a financial advisor. They can explain your choices about your former employer’s pension plan money and how to strategically work towards achieving your retirement dreams. Don’t be afraid to check with your current benefits to see if they provide retirement preparation calculators that can help you answer your questions and assess your current trajectory.
Remember what Joni Mitchell said
As Joni Mitchell famously sang, you don’t know what you have until he’s gone. Taking on a new job or career can be exciting, but before you leave your current position, take a close look at what you are leaving behind. Sometimes flashy perks can distract us from the most valuable aspects of a perk set. Are you trading the chance to work remotely for thousands of dollars in employer contributions to your 401 (k) or health savings account? What about health care costs?
Finally, have you taken into account the value of other employer benefits, such as credit counseling, financial planning, and mental health coverage? Before you quit your current job to seek greener pastures, make sure you have a full understanding of what you are giving up and a solid financial foundation to support you on your new path, wherever it may take you.
Krystal Barker Buissereth, CFA, is Managing Director and Head of Financial Wellness at Morgan Stanley at Work.
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