'A lot of people quit a job with the intent to take some time off': Here's how to financially prepare

Social media is full of posts from people embarking on the "Great Resignation," or the mass of workers quitting their jobs as the economy rebounds. Nearly 4 million people quit their job in April, according to the Labor Department, followed by another 3.6 million in May.

"A lot of people quit a job with the intent to take some time off," says Cady North, CFP and founder of North Financial Advisors in San Diego, California. "Maybe [they] characterize it as more of a sabbatical, take a rest, a respite, maybe travel, or maybe even do job training so that [they] can change jobs."

More from Grow:
Freelancer who has billed $432K in 1 year: My top 3 tips for success
Want to start a side hustle? Take this quiz to see which is right for you
Top 3 tips for starting a successful side hustle

While taking some time off can be a great way to recharge and rethink your direction, impulsively quitting your job could end up being pretty costly, especially in that gap between leaving one role and finding a new one.

Here are a few ways quitting could be expensive between jobs, and how to plan ahead to minimize costs.

'COBRA tends to be very expensive'

One major benefit of having a full-time job is that many employers help cover the cost of health insurance. Without that work-sponsored benefit, your medical costs could skyrocket.

"When you quit a job, you are still eligible for COBRA," says North. That program lets workers continue paying for the health insurance they had under their previous employer. But you're responsible for the entire premium, including the portion your employer previously paid. As a result, "COBRA tends to be very expensive, maybe two or three times what you were paying in your paycheck."

Video by Courtney Stith

John Dooney, HR knowledge advisor at the Society for Human Resource Management, says COBRA costs could be anywhere from $800-$2,000 per month, depending on the plan and whether you need coverage for a spouse and/or children.

Even before leaving your job, North says, "I always encourage clients to compare the price of COBRA health insurance with what's available on your state health-care exchange." That way, you can "see how you can get your health care covered in a way that's not going to break your budget."

You likely won't qualify for unemployment

Another thing to consider: When you leave your job of your own accord, you may not be eligible for unemployment. "Every state is a little bit different in what they're doing with unemployment," says Carolyn McClanahan, a certified financial planner and the director of financial planning at Life Planning Partners in Jacksonville, Florida.

The average weekly benefit in a regular unemployment program is $320, according to the Department of Labor. "I recommend for people to understand what the rules [are] in your state," says McClanahan. "If you quit your job just because you don't like it anymore, I don't think you're going to qualify for unemployment."

A lengthy job hunt could lead to 'running out of cash'

Without an income and access to unemployment benefits, you may end up having to dip into your emergency savings account to cover the basic costs of living including rent or a mortgage, utilities, and groceries.

And there's no telling how long it'll take to find that next gig that really excites you. "That's going to depend on what's the job market like in your field," says McClanahan. There may be openings in your field nationally, but they may not be located near you.

The length of the gap between jobs could also depend on what, exactly, you're looking to do next. If you're considering a pivot, it can "take a lot longer to find a good role because you don't want to put yourself in a position of just having to take on another job because you're running out of cash," says North. "You want the opportunity to think about what it is you want to do next."

Any of these could end up depleting your emergency savings, so if you're thinking it might be time to leave your current role, it's important to plan ahead. That includes saving up as much as you can before giving your notice.

"When I'm coaching clients through [leaving their job]," says North, "we're not going to do that if all you have is one month of expenses [stowed away]. We're going to do this if you've got probably a year to a year and a half, maybe even three years worth of your expenses covered."

The article "'A Lot of People Quit a Job With the Intent to Take Some Time Off': Here's How to Prepare" originally published on Grow+Acorns.

Video by Courtney Stith

Sign up now: Get smarter about your money and career with our weekly newsletter

Source: Read Full Article