10 Financial Moves to Make Before Quitting Your Job

Had it with your boss? Or longing to move into a role that's more fulfilling? With a good plan and solid finances, you can break free from a mind-numbing job and begin the search for something better.

For a smoother transition into your new life, make these 10 financial moves before you turn in your pink slip.

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Quitting a job spontaneously feels satisfying in the moment -- I know because I've done it. But in the weeks and months that follow, you might regret that move. Financially, the transition from employed to unemployed (and back again) can be challenging if you don't have a solid plan.

That plan could involve starting your own business, transitioning to another career, going back to school, or finding a better opportunity in your current line of work. Choose a direction and research what you need to be successful. Use that information to understand how to adapt your finances to your new reality.

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If your plan involves living without a paycheck temporarily, you may need to trim your living expenses until you replace your income. A good starting point for identifying savings opportunities is figuring out where your money is going today.

List out your nonnegotiable monthly, quarterly, and annual bills, plus amounts you spend voluntarily. A detailed review of those expenses should spark some savings ideas. You might find subscriptions you don't use, for example. Or maybe you're spending more than you realized on coffeehouse drinks, weekday lunches, and salon visits.

Insurance policies and the grocery bill can offer quick savings wins, too. Shopping around could save you hundreds on car insurance. Using sale flyers, coupons, and store-branded products at the supermarket can be equally fruitful.

If you get your health insurance through work, you'll need replacement coverage. You have two options. You can stay on your workplace plan by opting into COBRA coverage. Or you can buy new health insurance at the healthcare.gov marketplace.

COBRA coverage is notoriously expensive. You will pay the full healthcare premium, which is probably far more than amounts deducted from your paycheck today. One advantage is that once you accept COBRA coverage, your insurance becomes retroactive to the day you left your job.

Health insurance through the marketplace should be more affordable than COBRA, but the coverage is not retroactive. Marketplace coverage becomes effective on the first of the month after you select a plan. Also, you must sign up within 60 days of leaving your job.

If you don't want COBRA, shop marketplace plans before you resign. Then, time your resignation toward the end of the month to minimize your coverage gap.

If you get bonuses at work, check the payout and eligibility schedule before you resign. Often, bonuses are paid months after the earning period closes. You don't want to earn a bonus and then leave the company before it gets paid out.

You might also consider changing your 401(k) contribution rate for that bonus. It's never ideal to lower retirement contributions, but you may want to prioritize cash savings temporarily. Think of it this way. If the extra cash can prevent you from withdrawing from your 401(k) later, it's probably the right move.

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Vesting refers to the percentage of your employer matching contributions that you own and can take with you. If you are 100% vested, great. That means you can roll over your full 401(k) balance into another account. If you are 50% vested, you will forfeit half of your employer matching contributions when you resign.

Depending on how rich your employer match program is, the expense of losing those contributions could be sizable. You forfeit the deposits funded by your employer plus the future income associated with those contributions. Add up the numbers and you may decide to delay your resignation for another year.

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If you don't have a traditional IRA already, open one. Once you resign, you can roll your 401(k) funds into that account. Ideally, you'd request a direct rollover, where the funds go straight from the 401(k) into the IRA. The other option is an indirect rollover, where your 401(k) sends you a check. In that case, you'd deposit the check, plus any withheld taxes, to your IRA within 60 days.

If you've made designated Roth contributions to your 401(k), you'll also need a Roth IRA. Since designated Roth contributions are made with after-tax money, you don't want to put those funds into your traditional IRA. Plan on rolling them into a Roth IRA instead.

You can also use your IRAs to make retirement contributions that aren't tied to your employer -- as soon as your finances are stable enough. The annual contribution limit in 2021 across both accounts is $6,000, or $7,000 if you are 50 or older.

If it's possible, pay down your high-rate debt before you resign. You'll have an easier time managing your living expenses when you're not servicing expensive debt. Interest charges are budget killers, especially when you reduce your monthly repayment to the minimum.

Admittedly, debt paydown takes time, and this may extend your tenure with your current employer. But there are advantages. Delaying your resignation may increase your vesting in any matching contributions. You may earn another bonus, too. You can also use the time to practice living on a budget. Any savings you generate can fund higher debt repayments, which should shorten your payoff timeline.

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If you plan on living off your emergency fund, make sure you have enough. Experts recommend a balance that will fund three to six months of living expenses. You may want more than that, though, so you aren't rushed into another job you don't love.

A more conservative emergency fund target would cover for six months of living expenses, plus an extra amount for insurance deductibles. Because if there's an especially bad time to cause a car accident, it's when you're temporarily out of work. In matters of finance, it's best to be prepared for the worst.

In the vein of preparing for the worst, evaluate the risk you have in your investment accounts, including the 401(k). If your emergency fund runs out, your portfolio may be your next funding source. Investing too aggressively when you may need to liquidate can work against you. All it takes is an unfortunate market dip and you'll be selling your shares for less than you'd like.

This doesn't mean you should sell all your equities proactively, of course. But you might benefit from having a layer of stable assets -- securities you could sell in a pinch, even if the market's turned rocky.

You know what they say about the best-laid plans. Consider how you'll respond if your plan doesn't turn out as expected. Maybe the job market is tougher than you'd realized or your new business grows more slowly than you'd projected.

In those scenarios, you might benefit from having a backup income plan. That could involve a part-time job, gig work, or some form of passive income. If you own dividend stocks in a brokerage account, for example, you might turn off the reinvestment of those dividends temporarily.

Hopefully, you don't have to implement the backup plan. But thinking through these options should allow you to feel more prepared when you take the resignation leap.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Quitting your job is a big life decision with serious financial consequences. But it may be a necessary step to landing a career you truly enjoy. Fortunately, with a little legwork, you can mitigate enough financial risk to feel comfortable stepping toward your new life.

That legwork involves planning for and resolving questions around your budget, health insurance, retirement account, and emergency fund -- before you quit. Take care of those details early and you'll have more bandwidth to focus on implementing your new career plan.

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