Changing Jobs: 5 Financial Tips to Help Make a Seamless Switch
Get your finances ready for a career switch with these 5 steps
Maybe you’ve always wanted to open your own restaurant, become a classroom teacher or sell a TV script. Or maybe you’re looking for more growth opportunities within your current field. Either way, there’s never been a better time to switch jobs. Despite the recent fluctuations in the stock market, the U.S. economy is humming along with unemployment at 3.7%, the lowest jobless rate since 1969.
With so many employers looking for fresh talent, now is the perfect time to think about changing jobs, or even careers. But before you tender your letter of resignation and take the entire office out for margaritas, make sure your money is ready for the change.
If your career move takes you to a new city—or even if it doesn’t—starting a new job is also a good time to evaluate your bank. With change on the horizon, make sure you have a checking account that fits your life.
Here's a quick financial checklist to help you get started.
1. Know the cost of changing jobs
Not all salary hikes are created equally. When you’re changing jobs, it’s not just about how much you make but how much you take home. Your new salary may be higher but if your new job doubles your commute and how much you pay for gas every month—or if the new job is in another city with higher taxes—you may end up taking home less than you make in your current position.
Of course, career advancement isn’t all about the money. If the new position is a better fit for you professionally, or offers you better hours or more flexibility, you might decide that the added expense of moving or commuting more is well worth it. In that case, it’s even more important prepare your finances.
2. Figure out your cash flow
According to the experts, the average job search can take four to six months. It may take longer if you’re upgrading your skills to qualify for a position in a new sector. Plus, what if your current job ends in November and the new one doesn't start until the new year? As a general rule, it’s always good to have enough savings to cover at least six months of expenses so you can meet all your financial responsibilities while job hunting. If you don’t have that much available today, consider raising more cash by:
- Reducing your 401(k) contribution to the minimum and saving the rest.
- Reducing your tax withholding, especially if you usually receive a tax refund.
If you do decide to go this route, it’s a good idea to talk to your accountant or another tax expert first, to make sure you don’t get hit with any financial surprises later on.
3. Maintain your health insurance
This is a big one. Switching jobs can often disrupt your current health insurance and no one can afford a lapse in coverage. There are a number of options to ensure you’re covered throughout the transition.
- If your spouse works and has coverage, check to see if your career switch qualifies as a ‘life changing’ event and allows you to join their plan.
- Use your company’s health insurance continuation coverage a.k.a. COBRA. Most employers are required by law to allow you to continue coverage in their plan for up to 18 months.
- Work with your new employer’s plan to make your health care coverage retroactive to your last day of coverage with your old plan.
4. Check on your retirement funds
Often, workplace retirement benefits vest after a certain amount of time, meaning the money is not all yours until you’ve been with the company for a specific number of years. When an employee is 100% vested in the retirement plan, you own 100% of the savings. And while employees always own 100% of their own contributions, you don’t own 100% of your employer’s contribution until it’s vested.
Look into your current employer’s policy and check your status. It would be a shame to leave your current job if you only have a few more months to go until you’re fully vested.
5. Consolidate retirement plans—if it makes sense
Starting a new job can be overwhelming but it makes sense to compare the costs involved with the old and new retirement savings plan. If your old company has better savings options, it may make sense to keep your money invested in their plan. This is often the case if you’re leaving a large company for a startup. If you prefer to keep all your retirement savings in one place for the sheer convenience, make sure you’re choosing the lowest cost options in the new plan and take the opportunity to renew your asset allocation to ensure it matches your stage in life.
Advancing your career goals often goes hand-in-hand with advancing your financial goals. With the right planning, you can boost your bottom line and take an important step forward in your savings and retirement goals.
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