Quitting your job might make you happier in the short-term, giving you freedom and more time to spend with your loved ones. But, you’d better figure out if you can afford to do it.
First, if you don’t have another job immediately lined up, you should estimate how long you can live on your savings without having a primary source of income.
A good rule of thumb is to have enough savings on hand to cover your expenses for at least six months. Those expenses include all of your bills, such as food, housing, utilities, credit card payments, your monthly car payment, and car insurance. So, if your total monthly expenses are $2,500 and you have no income, you should have at least $15,000 socked away in an emergency fund.
Here are some important financial considerations if you are thinking about quitting your job.
Can You Get Unemployment Benefits?
You most likely won’t be eligible to receive unemployment benefits if you voluntarily leave your job. However, you might be eligible if you have “good cause,” which means a “substantial motivating factor” caused you to leave. This could include unsafe working conditions and employer misconduct such as sexual harassment.
Make sure you check with your state unemployment office or website to see if you are eligible for benefits.
What Are Your Moving Expenses?
If you have a job lined up in another city, what are the moving expenses? The cost of moving can be quite high and these costs will include things such as gas and plane tickets, shipping costs, renting trailers or trucks, and hiring movers. You should expect to spend a minimum of $1,000 to $5,000 to move, but it depends on how far you are relocating and how much stuff you bring.
Are you eligible to receive reimbursement for moving expenses from your new employer? You should check with them before you make a big move. If you’re able to negotiate salary and other benefits before accepting a new position, that’s a good time to bring up relocation reimbursement.
You might also be able to write off all or some of your moving expenses as a tax deduction. To qualify, you must pass the IRS’ complicated “distance and time tests.” For example, your new job must be more than 50 miles farther away than your old workplace was from your former residence. In addition, you must work full-time for an employer in the vicinity of your new job for at least 39 weeks during the year following your move.
If you’re moving to another city, is the cost of living higher?
For example, if you currently live in Raleigh, N.C., and make $50,000 a year, and plan to move to New York City, you’ll need to earn $123,156 to maintain your current standard of living. This is mainly due to higher housing costs, which are 566% more expensive in New York, along with higher food, transportation and other costs.
Use the NerdWallet cost of living calculator to compare the cost of living in two cities.
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Health Insurance: Are You Covered?
The next thing to consider is whether you’ll have health insurance for the period of your unemployment. Unpaid medical bills affected nearly 2 million people in 2013, with 1.7 million Americans living in households that declared bankruptcy due to their inability to pay their medical bills, according to a NerdWallet study.
If you can’t get on your spouse’s health insurance plan, you may want to consider applying for marketplace coverage under the Affordable Care Act. Remember, you must be covered by health insurance by March 31 or you will face a penalty.
If you are quitting your job, will you be a happier person because of it? After all, if you really disliked your job, maybe quitting is the best option — if you can handle it financially.
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NerdWallet, a consumer finance website that promotes financial literacy, is forever looking for the best ways to keep Benjamins in your wallet. Be it investments, saving, health care, education, housing, or travel, NerdWallet uses data-driven tools to help you make the best decisions about your money — yep, they do the homework for you.