5 Things To Do With Your Money When You Change Jobs
After applying, waiting, interviewing, waiting again, and then finally negotiating an offer, you have a brand new job.
It's easy to get so caught up in the excitement that you don't stop to think about what this will mean for your finances.
Here are five things experts suggest you do before, or right after starting, a new job.1. Make sure you understand your new compensation package.
Job seekers tend to focus just on salary, says Cameron Laker, CEO and cofounder of human resources and recruitment firm Mindfield. But before you start your new job, you should sit down and review all the ways in which your finances will be changing.
"It could be something as simple as traveling further to work. What will the gas costs add up to?" he says.
Similarly, your new insurance may come up with a higher deductible. Or perhaps your old company was paying for your cell phone, but your new employer won't.
All of these factors can potentially cancel out a new, higher salary, so it's important to know where you stand so that you have a realistic picture of what you can spend.
2. Adjust your budget.
If you're taking a lower-paying job to join an exciting new startup or follow your passion, you'll need to carefully consider how you're going to scale back. If you're going to be making more money, you'll have to plan ahead in order to avoid lifestyle creep.
"Most people just let their spending increase with their income, when they should be saving more," says Robert D. Oliver, a certified financial planner. He recommends setting automated transfers to savings or investment accounts, or towards paying off debt.
3. Decide what to do with your former workplace's 401(k).
If your former employer offered a 401(k) plan to save for retirement, you'll have several options: keeping it as-is, rolling it over (industry jargon for moving it) into your new 401(k), or rolling it into an IRA.
Oliver doesn't recommend the first option. "I'm a big fan of keeping things as simple as possible. If you have multiple funds lingering, it just makes financial management more complicated." But he acknowledges that if you have an excellent plan with good low-cost investments, like the Thrift Savings Plan for government employees, it may make sense to hold on to it.
For most people, he says, rolling over retirement accounts into an IRA is "the path of least resistance." Usually, it will offer lower-cost investments than their new 401(k). However, he points out that it's possible to take out a loan from a 401(k), but not from an IRA. While he doesn't recommend taking out a loan from your retirement savings, this is the type of detail that you'll want to be aware of when making the switch.
4. Change over your insurance.
In many cases, you won't be able to start using your new health insurance plan until you've worked at the company for thirty days. During the transition period, you'll want to enroll in COBRA to keep your old coverage going, Oliver says. That can be expensive, since you'll be taking over the costs that were once covered by your employer, but it's still worth the peace of mind that comes from knowing that you're prepared in case of emergency.
Once you've given your notice, your company has 14 days to give you the option to receive COBRA coverage. If you say yes, your coverage will begin on the day after your benefits would normally end.
Likewise, in order to make sure that your family will also be covered in case something terrible happens, Oliver also recommends finding out if your new job offers life or disability insurance. If not, you may be able to convert your former employer's group policy into an individual one.
5. Understand how vesting works.
Does your new employer offer vesting that will allow you to earn equity over time? If so, you'll want to figure out exactly how that works. Generally, companies will grant you options from the start, but they only become yours as they vest over time. Likewise, you may be given stock, but the company will retain the right to repurchase it if you leave, unless it has fully vested.
Timelines tend to vary from company to company, so you'll want to make sure that you completely understand what you're getting into, Laker says. "How long does it vest for? This could heavily impact how long you choose to stay at the company." Once you get settled in, you may forget to ask these questions, so it's a good idea to understand how your employer will be supplementing your salary before you start.