Many of us have re-evaluated our priorities during the pandemic, whether it’s seeking a better work-life balance or even a different job or career. According to a new Bankrate survey, over half of American workers are looking for new employment in the next year—and for groups disproportionately affected by the pandemic, such as Gen Z, Millennial, and Black, Indigenous, and People of Color (BIPOC) workers, that figure is even higher.
This wave of potential job switchers is being called “The Great Resignation.” If you’re a part of this shifting tide, the real question is: Are you financially prepared? Whether your goal is to change jobs, swap careers, or start your own business, here’s a checklist to help you assess whether you’re ready to make the leap.
Build a financial cushion (aka emergency savings)
A recent study found that 40% of American adults don’t have enough non-retirement savings to cover even one month of living expenses, and less than a quarter have liquid savings worth more than three months of their family income.
That can be a problem because, according to the Bureau of Labor Statistics, it takes about four months for today’s job seekers to find new employment. While that timeframe can vary based upon your role, location, and industry, you need to be prepared to cover your living expenses for at least that amount of time—and preferably more.
In other words, if you’re looking to leave your job in the next year, start building up your emergency savings now. We all know life doesn’t always go according to plan, so when making a career shift, it’s better to have more money than you think you’ll need rather than to find yourself in a pinch. Increasingly, employers are beginning to offer access to financial advice to help you get understand where you are and how to get started on both short- and long-term financial goals, including building up your emergency savings.
Re-assess your budget—or create one
Fortunately, more people are tuning in to their finances and thinking more strategically about reaching their goals. According to the Debt.com 2021 Budgeting Survey, 80% of Americans say they have a budget—which is an improvement from just 68% two years ago.
However, your budget—like a financial plan—needs to be personalized and flexible, able to move with you as your needs and situation evolve. Be realistic: Your budget should be designed for where you are today, not where you were several years ago or where you want to be in six months.
Start by re-examining. Look for ways to cut back on expenses, take advantage of untapped workplace benefits with your current employer, or find a “side hustle” to help you sock away extra money. Your current job may also come with digital tools and access to advice that can help you gather a more accurate picture of your current financial situation and needs.
Know thy debt
A key part of preparing for a career leap is making sure you have a handle on your debt—not just what you still owe on all your credit cards, student loans, mortgages, personal loans, etc., but also the interest rates you’re paying on every account.
When it comes to debt, remember that what you don’t know can hurt you. Almost half of Americans don’t know the interest rate they’re paying on their credit cards. And a quarter don’t know their mortgage rate. And one in five can’t quote the interest rate on their student loan.
This isn’t a demographic in which you want to belong. Check your statements—find your current Annual Percentage Rate (APR). Are you making minimum monthly payments or paying down more? How much of your payment is going toward principle, and how much toward interest?
Explore options for consolidating or paying down your debt: Lowering your debt burden can give you more financial breathing room, and help you weather any surprises that may come with making a job change. Again, your current workplace benefits may be able to help you form a more accurate picture of your current financial situation.
Don’t forget your retirement savings
One of biggest mistakes new hires can make is forgetting about their former employers’ 401(k) plan. Capitalize recently reported that millions of people a year forget about their 401(k) plan when they leave for another job—and the average balance of these “lost” 401(k) plans is $55,400.
While keeping your 401(k) invested in your former employer’s plan might be the right choice for some individuals, be intentional about evaluating your options. Depending on your age, retirement goals, and investment options, a prior employer’s plan may not be the best fit for you. If you’re considering an employment change, be sure to weigh your retirement readiness—how much you’ll need to save to live the kind of life you want once you’re no longer working.
If you’re not sure how to gauge whether you’re on track with your retirement savings or whether consolidating all your retirement accounts makes the most sense for you, it can help to consult with a financial adviser. They can walk you through your choices for the money in your former employer’s retirement plan and how to strategically work toward your retirement dreams. Don’t be afraid to check in with your current workplace benefits to see if they provide any retirement readiness calculators that can help answer your questions and assess your current trajectory.
Remember what Joni Mitchell said
As Joni Mitchell famously sang, you don’t know what you got ’til it’s gone. Taking on a new job or career can be exciting, but before you leave your current position, take a hard look at what you’re leaving behind. Sometimes flashy perks can distract us from the most valuable aspects of a benefits package. Are you exchanging the chance to work remotely for thousands of dollars in employer contributions to your 401(k) or health savings account? What about health care costs?
Finally, have you factored in the value of other employer benefits, such credit counseling, financial planning, and mental health coverage? Before you quit your current job to seek greener pastures, make sure you have a complete understanding of what you may be giving up—and a strong financial foundation to support you on your new path, wherever it may lead.
Krystal Barker Buissereth, CFA, is managing director and head of Financial Wellness at Morgan Stanley at Work.
Disclosures: This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be appropriate for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.
© 2021 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 3851321 10/2021