Before You Rage Quit, Consider These Financial Ramifications
The “Great Resignation” is upon us. The number of employees who quit their jobs increased by 2.7% in June, specifically in fields such as professional and business services, durable goods manufacturing, and state and local government, according to the latest Bureau of Labor Statistics jobs report. That’s 3.9 million people who willingly left their jobs at the start of the summer — many with little or no notice.
The trend of “rage quitting,” or leaving a job with no notice and no back-up plan, has increased as the economic effects of the pandemic have started to wane, says FlexJobs. But rage-quitting — a term borrowed from the gaming community, where a player abruptly leaves a video game due to frustration and anger — can have serious consequences in the real world.
Rage quitting can leave you with a bad reputation that could impact your ability to find work. “When you rage quit, you’ve most likely guaranteed you won’t get a good reference from your current job,” says career coach and FlexJobs’ team lead Toni Frana. “If you rage quit your job, you have to prepare for the inevitable interview question, ‘Why did you leave your last job?’ While there are ways to explain employment gaps in your work history, and you won’t have to explain the exact circumstances of how you left, you will need to explain why you left without securing a new job first,” she added.
Rage Quitting Could Impact Your Future Savings
Ideally, you’ll have emergency savings to cover three to six months of living expenses set aside to keep you afloat if you rage quit. But that’s not always the case. A recent GOBankingRates survey found that 40% of Americans have less than $300 in savings, while 50% have less than $600 in savings.
If that describes your bank account, you’ll need to turn to other avenues to survive until you line up new work, since you won’t be eligible for unemployment insurance if you quit your job.
Options include tapping into your Individual Retirement Account (IRA), 401(k), or taking out a second mortgage or home equity loan to pay your bills. “These should be used as short-term solutions since they’ll incur high debt and decrease your retirement savings in the long run,” says Jordan Bishop, founder and CEO of Yore Oyster, a site that helps you optimize your finances while living an international life.
Rage Quitting May Negatively Impact Your 401(k)
“You shouldn’t use your 401(k) to support yourself if you rage quit since that can impact how much money you can accumulate for your retirement,” says Ben Reynolds, CEO and founder of Sure Dividend.
Cashing out your 401(k) before you are 55 means you’ll pay taxes on the funds, along with a 10% early withdrawal penalty. However, you can evaluate your investment options and decide to move your money to an IRA, which may offer better returns and lower fees. Once you secure a job in the future, Reynolds said, you may be able to move the investment over to a new 401(k) account if you start at another company that offers better investment options.
Rage Quitting Could Hurt Your Credit Score
Quitting your job won’t directly impact your credit score, but if you opt to live on your revolving credit until you secure new income, you could dig a hole that’s very difficult to climb out of. “Credit cards should be the last resort,” said Gary Grewal, a certified financial planner and writer at Financial Fives. “[Using credit cards] can snowball into reckless spending and kicking the bill down the road.”
Even if you find a way to make your credit card payments on time, if you drive up your balances by charging your daily expenses, your credit utilization ratio will rise. Since this number is one of the five biggest factors determining your credit score, your score could drop.
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It’s especially crucial to preserve your good credit if you haven’t lined up work yet, Grewal pointed out. “More often than you think, your credit score can be used in a background check for future employment to see whether you are a reliable employee. It’s also important if your job search takes longer than you expected and you need to move to take a new position.” You’ll need good credit to rent a new apartment or secure a mortgage for a home.
And if you decide to go the entrepreneur route and launch a business, you may need to tap into your personal credit for startup capital.
You Could Lose Your Health Insurance
Think carefully before you rage quit, because you could lose your employer-provided health insurance. However, this entitles you to a special enrollment period for healthcare through the Marketplace. You can also ask about COBRA coverage, which extends your employer-provided health insurance at your own expense.
Either way, if you rage quit, health insurance will likely be an additional out-of-pocket expense you hadn’t budgeted for.
Is Rage Quitting Ever the Right Choice?
In certain circumstances, rage quitting may open new doors for your career that you wouldn’t have seen if you were stuck in a job you hated. Although rage quitting is an impulsive action, it’s likely the circumstances and feelings leading up to it built up over time. Being aware of the financial ramifications before you quit can help you mitigate the long-term damage to your lifestyle, savings, and financial security.
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Last updated: September 8, 2021