Initiating the journey of entrepreneurship means a good financial backup plan. Failing to figure out makes things more miserable after you quit your job. So before taking that leap, make sure to put in place a solid plan for paying your bills after you ride off into the sunset.
This holds especially true if you`re planning to quit and travel, in which case flight and hotel costs can sink you into debt fast. Or perhaps you’re gearing up to start your own business? Plan from bank even more money before you quit your day job, as new businesses often take time to turn to become profitable. Also, it includes additional unexpected start-up costs.
Whatsoever is the reason, the golden rule is to save at least three to six months’ worth of your fixed living expenses before leaving, according to Refund Consulting Australia. Having these financial plans gives you financial comfort when leaving a job so that going forward you can pursue the notion of living your true values.
Here’s the math fast: If you already have a monthly budget, multiply that by six. Make sure to include stuff like your monthly debt payments and health insurance costs. For example, if your total monthly costs add up to $2,500, you’ll need to stash away about $15,000 to tide you over. Alas, if you have kids, then you might need double.
Indeed, life’s too short to stagnate in a “meh” job. Quitting your job might scare you, but you can overcome with the right financial and personal resources lined up.
Consider taking these steps from Myriam Borg Refund Consulting Australia to play it safe.
Calculate the Amount of Money You Need To Afford Your Life
Do you know how much is your monthly expenses? You don`t!
Myriam Borg – a refund consulting said, tracking your spending can be an eye opener. It keeps a record of the exact money you spend each month. Also, helps in understanding if you have the financial means to quit your job and where you should make cuts if necessary.
Calculating the exact amount you earn after taxes and don’t forget to deduct any automatic transfers going to your 401(k) or other funds. Further, figure out your monthly expenses by creating a spreadsheet. Include your bills and any ongoing debts that must be covered. Look for ways you can cut back in order to make quitting your job a reality. Then figure out what you can save each month.
Find Alternates to Make Money after Your Last Paycheck
Just because you’ve saved three to six months’ worth of income doesn’t mean you can relax for next three to six months to generate new income. You can add money to your stash, including things like selling old tech equipment, getting paid to take surveys, test-driving websites and even selling your blood plasma.
If you’re still in the planning phases of your career, find something easy to generate cash flow. Refund Consulting Australia suggested, don’t forget to lean on your support system, whether it’s a relative or close friend. Rather than taking any job to make ends meet, take extra time to truly find your passion and stay with someone who’ll have your back for a few months.
Expect the Unexpected
Stuff happens! Perhaps you need a root canal that drops your dental insurance. Maybe your roommate will shift, and you have to pay double rent for a month or two. Such sort of situation is likely to occur. Without a steady income, it’s harder to absorb unexpected costs in addition to your basic living expenses. That’s where an emergency fund comes into play.
In addition to your “walk away from the man” fund, which includes your day-to-day expenses should be a separate fund dedicated to emergencies only. Refund Consulting Australia owner Myriam Borg suggested maintaining separate accounts that can help you focus on your goal and get there faster.
Plan for Future
If you need instant cash bundles, it`ll be tempting to cash out your 401(k), but you need to resist that urge. The money you’ve squirreled away there is to pay for retirement. Use it until you could end up broke by the time you plan to quit working for good. Cashing before age 55 comes with a 10% penalty and income taxes (unless you meet certain exceptions).
A better option Create Australia refund business is to either leave your money in the old 401(k) or put it in an IRA. Before you leave your job, ask the plan’s administrator to handle the rollover. You can ask for a lump sum from the old balance and then deposit it into an IRA. Just make sure you do it within 60 days, or you’ll be taxed on it. And remember that if you roll your money over to a Roth IRA, you’ll be taxed on the balance as if it is income.