Securing a new job is an exciting time. It represents an opportunity to learn new skills, advance your career and find greater job satisfaction. A new job also has significant implications for your finances — ranging from your daily earnings to your retirement savings.
To make this transition as smooth as possible, you must prepare for your new role on a professional and financial level. Whether this is your first time changing positions or you change jobs at the average rate of once every four years, here are some of the most important things you should do for your finances when changing up your career.
Financial Preparation for a New Job or Career Change
You can start financially preparing for career changes well before giving your two weeks’ notice. Discover ways to feel more empowered as you explore new career paths.
Build an Emergency Fund
As soon as you decide it’s time to look for a new role, make an effort to save money for a job change. You may have to endure an extended period without income, depending on when you receive your last paycheck at your old job and your first one at your new job.
Having some additional cash in your bank account can help you get through that time. If you don’t end up using that money, you can always put it toward something else, such as making an investment or catching up on your retirement contributions.
Create and Manage a Budget
Budgets help improve your financial stability. Between a different payment schedule and a new salary, you may need to amend your current budget to serve this new career phase.
If your pay increases, be thoughtful about what you do with your newfound riches. You can certainly find ways to spend more, but you may also consider how to use this money for your long-term benefit. This could include paying off debt more quickly, investing, or putting more toward retirement.
If you’ll be earning less, you may need to make immediate budget changes. Consider trimming your spending and finding other ways to decrease your expenses. This will help you adjust to the salary reduction and ensure you’re set up for financial success after starting your new position.
Verify Your Last Paycheck
After you’ve given notice, ask your HR department when you will receive your final paycheck, as this will make it easier to plan for the transition.
Once you receive your last paycheck, look it over thoroughly. Make sure it’s accurate based on the time you’ve worked. This is especially important if you worked abnormal, extra, or reduced hours to prepare for your departure.
Final paychecks may also include additional payment information, such as a leaving bonus or the cash value of your unused PTO. Take the time to review that information and ensure that it is accurate before you leave.
Managing Debt
Having a credit card is an instant fix to life’s curveballs. However, the ongoing monthly repayments with interest can be a lasting headache. It’s worth devising a strategy to reduce your debt while transitioning into a new position. Here are some key areas to consider:
Evaluating Your Current Debt
From student loans to car repayments and mortgages, debts can add up to a significant amount each month. Before taking on a new job, list all your debts so you know how much you owe each month. By calculating a consolidated monthly amount, you can plan the amount of money you need to set aside.
Debt Repayment Strategies
While settling your debts can seem like a significant challenge, you can make a monthly effort towards your goal. Some methods to explore include:
- Consolidating your debts: Combining all your debts lets you pay one payment each month and often has a lower interest rate.
- Seek professional advice: Talking with a professional about lowering monthly payments may help you reduce interest payments.
- Revitalize your budget: Look at your needs and wants and strategize your budget accordingly. Cutting back on nonessentials can help you pay off debt and reduce interest payments.
Planning for Transitional Periods
If you’ll have a gap between your old job and your new one, make the most of that time. Here are some ways you can plan for a transitional period:
Take Advantage of Your Current Benefits
Before leaving, use up any perks and benefits offered by your current employer. Some benefits, like unused contributions to your retirement, can follow you to your new position, but many others, such as paid time off (PTO), can’t.
When possible, find a way to use these benefits and maximize your remaining time at your current position. This could include taking advantage of health perks or using your PTO to take a break before starting your new job.
Fill Coverage Gaps
Remember to fill any gaps you may have in your health insurance coverage. Both long and short-term lapses in coverage can leave you medically and financially vulnerable. You have many options for filling coverage gaps, including:
- COBRA coverage: Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you can keep your current health insurance, even if you leave or lose your job. COBRA coverage is a temporary solution, as it only offers coverage for a limited time. You may also have to pay higher premiums for coverage, especially if your employer used to subsidize them.
- Health Marketplace coverage: You can also apply for Marketplace health insurance. Losing your employer-provided coverage is a qualifying event, so you can apply even if open enrollment is closed.
- Coverage from your parent or spouse: Depending on your specific circumstances, you may be able to get on someone else’s insurance plan. If you’re under the age of 26, you can still get on your parents’ plan. If you’re married or, in some cases, part of a domestic partnership, you may be able to get coverage from your significant other.
If your new organization offers health insurance, you just need to account for any time that you’re uninsured between jobs. If they don’t, then you’ll need to find a new plan that will work for you in the long term. Take your time and be thorough while evaluating all of your options.
After Starting Your New Job
You aren’t done tending to your finances when you start your new job. There are some further steps you should take even once you’ve settled into your position:
What to Do With Your Retirement Accounts
Regardless of where you’re at in your career, you should continue (or start) to save for retirement. To that end, you’ve got several options for your 401(k), including:
- Keep your current account: If your balance is high enough, you may be able to leave your 401(k) where it is. This is certainly the easiest option, but it may only be available if you have enough money in the account. Further, you can only keep this up if your previous employer continues to offer a retirement plan.
- Open a new account: If your new employer provides retirement benefits, you can open a new account and move your funds over. This may involve a bit more legwork, but it allows you to take advantage of your new employer’s offerings. They may have a better savings match, more investment options, or lower fees — any of which would help bolster your retirement savings.
- Roll into an IRA: You can always roll your 401(k) into an individual retirement account (IRA). This is a great choice if you can’t keep your current 401(k) or move your account to your new employer. You’ll also have more control over your investments, especially if you opt for a self-directed IRA.
- Cash out: Additionally, you’ve got the option of cashing out your 401(k) entirely. However, proceed with caution. If you make an early withdrawal from your retirement account, you’ll likely get hit with heavy taxes and penalties. Your investment will also miss out on the value of compound interest and future growth. This can ultimately hinder your ability to retire comfortably.
Assess the current state of your retirement account, as well as any plans offered by your new employer. Consider every option carefully before you commit, since this can have long-term impacts on your finances.
Saving and Investment Strategies
Starting a new job is a natural time to revisit your financial plan. Though similar to a budget, a financial plan helps you map out your long-term goals and the strategies you can use to achieve them. You don’t need to have every single step mapped out, but it’s important to consider, generally, what you value and want from your finances. This can include decisions about purchasing a home, paying off debt, retirement, investing, starting a business, or any other financial decisions.
A professional change can lead to significant differences in how you view and handle your finances. It may open up new opportunities, negate your previous plans, or help you make decisions about your future. Even if you feel confident about the plan you’ve already got in place, it’s still worth taking the time to go over it and make sure you’re on the right track.
Learn About Your New Benefits
As you settle into your new role, spend some time learning about the benefits and perks offered by your employer. Look at health insurance plans and add-ons, such as health savings accounts or supplemental insurance, that can help you save on medical costs. You should also go over any available forms of non-salary compensation, like company stock options or tuition reimbursement programs. If you take advantage of them, these benefits can go a long way in boosting your finances, both now and in the future.
Navigate Job Transitions With Accuplan
Changing jobs presents its fair share of personal and professional challenges. As long as you plan appropriately, though, you can minimize — and possibly eliminate — the financial challenges you face.
Accuplan helps people prepare for the future with helpful financial advice. If you’d like to discuss your options with an expert, give us a call or complete our online form to help us better understand your needs! Fill out an application form or call us today!
Our information shouldn’t be relied upon for investment advice but simply for information and educational purposes only. It is not intended to provide, nor should it be relied upon for accounting, legal, tax or investment advice.