Leaving your job can be a great way to take your career (and salary) to the next level. However, figuring out how to pay for your next move isn’t always easy. You might be worried about not having enough savings to quit, but that shouldn’t trap you in a job you’re determined to leave.
Cutting down on your spending or even taking out a personal loan could help you grow during unemployment or a career transition. Find out more in our guide below.
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Ideally, you should have enough savings to cover at least six months of living expenses before leaving a job. How much is that? Calculate this by first making a monthly budget for yourself based on your past few months of spending. Don’t include any unusual expenses like that trip to Mexico you took two months ago. Remember to deduct any work-related expenses like transportation costs.
Once you have an idea of what you need to live a reasonably comfortable life, multiply that by six. If you have this amount saved up before you quit, you should be OK until your next job comes along.
If you don’t have enough savings, you may still be able to leave your job and work out your finances. Let’s be real: Saving up for six months of living expenses can take a long time, especially if you’re underpaid. If you only have enough cash to cover a couple of months, you have other options.
Cut down on spending
Instead of only getting rid of the unnecessary expenses like the gym membership you never use, go through your recent bank statements and be brutal about where you can cut back on spending. Maybe you spend a lot at restaurants and bars, or maybe you buy too many socks. Cut back in any area that isn’t absolutely essential. Even something as simple as avoiding ATM fees by only withdrawing cash at your bank can help.
Get a personal loan
Taking out a personal loan along with cutting your spending can help you get by financially until you get a new job.To save money, go for a loan with a longer term and no early repayment penalties. That way, you can afford the low monthly repayments while you’re unemployed and avoid interest by paying off your loan early once you get a job.
Applying for a personal loan ahead of leaving your job is crucial. Almost every lender lists employment as a basic income requirement — though not all do. To get a competitive interest rate, you’ll typically need to make a certain amount of money each year. For peace of mind, apply for your loan well in advance of your two weeks notice and get the funds in your account before your last day on the job.
Lenders usually consider the following factors when deciding on your rates, fees and loan amount:
- Your credit score and credit report
- Your debt-to-income ratio (DTI)
- Your employment status
Check your credit score to make sure it is accurate before you apply for a loan and try to pay down any outstanding debts in order to lower your debt-to-income ratio
What you do with your loan is largely up to you, as long as it’s used for a legitimate purpose. Some lenders will ask what you’re going to use your funds for in the application, while others won’t.
If you don’t have a concrete idea on what you’ll use the money for, here are four helpful ways to use a personal loan after you leave your job:
1. Take some classes or get certified
Taking time off from work to take courses in your field could give you a competitive edge for your next job or help you switch careers. A class that offers a certification usually shoots you into a higher pay bracket. This is particularly useful in a field that’s constantly evolving, like computer programming.
Volunteering is another way to gain work experience in a new field, and could even lead to a new job. It’s an opportunity to learn new skills in a risk-free environment and can give you a fresh perspective on your career by breaking the habits of your old job. Plus, you might be able to travel abroad at a relatively low cost.
Travelling is not the same as vacationing. It requires work, can be uncomfortable and can end up being more expensive than you originally planned. However, it can give you a fresh perspective on life and your career, teach you new skills — like a new language — and make you a more appealing candidate when you apply for jobs.
- Travel hack: Apply for jobs in an area you’d like to explore. You can visit other countries on weekends and holidays without having to make huge financial sacrifices.
4. Start your own business
Maybe you quit your job because of a passion or desire to be your own boss. It’s generally not a great idea to start your business with a personal loan, since you’ll be held financially responsible if your business fails. However, you could use the money to cover startup costs and then seek out investors or set up a crowdfunding campaign. Additionally, a personal loan can help you cover your personal expenses while your business is getting off the ground.
- Build an emergency fund. Because you don’t have the safety net of a job, make sure you have an emergency fund should you need money for an unexpected expense.
- Pay your bills ahead of time. That way you don’t have to worry about leaving room in your budget for utilities and essentials for a few months.
- Take advantage of your health insurance. Chances are your employer health benefits are better than your coverage once you’re unemployed. Get a dental checkup and get refills on prescriptions before you have to pay full price.
- Take out that mortgage. New jobs look bad on mortgage applications and being unemployed is even worse. As long as you’re sure you can comfortably manage making monthly mortgage payments, you might want to do it now while your employment history looks stable.
Leaving the stability of a job can be scary, but also an exciting career move. Having a nice sum of money saved up to cover living expenses makes quitting more comfortable and less risky. Taking out a personal loan to help fund any emergency expenses, startup business costs or travel expenses can be helpful — but try to save up to avoid borrowing in the first place.