Changing jobs is rarely a smooth transition. Perhaps you accepted a better opportunity, or maybe you have found yourself in-between jobs. Whatever the case, a new job may require a lifestyle change and possible financial shift.
Not only are you having to get used to a new schedule, job responsibilities, and new co-workers, but you have to consider your financial situation. And, before you start that new gig, you may have to stretch your budget a little – at least temporarily. This is why proper financial planning is so important when it comes to reaching your savings goals and paying your bills.
The good news: the financial stress of switching jobs is usually just a short-term inconvenience. Here are some tips to help you make a smooth financial transition into your next job.
Ask about your new pay schedule
Every employer handles payroll differently, which can make it incredibly confusing for you as the employee.
After you leave a company, it’s possible that you will receive a payout for paid time off or severance. Remember – that amount of money can help tide you over while you’re waiting for your first paycheck from your next employer.
While you’re making your cash last until your next paycheck, make sure you ask your new employer about the pay schedule. Some employers pay employees every week, while others pay just once a month. Not only that, but some employers pay up-to-date, meaning you can get your first paycheck sooner. Other employers take an additional pay period to process your paycheck, so you are paid for previous time worked. Talk about confusing.
The best thing you can do is ask your human resources department when your first paycheck will hit your bank account. And if you’re paid by the hour, be sure to ask how many hours you can expect to see on that paycheck – this way you’ll know what you’re looking at. And, here’s a pro tip: if you have a Chime bank account, you’ll get paid two days early. No more waiting for your electronic payment to come through or waiting on a check to be delivered in the mail. Instead, your hard-earned money is available right away. No more waiting.
Don’t forget about insurance payments
For anyone currently covered under an employer-sponsored health insurance plan, you will want to pay close attention.
Once you leave an employer, they will terminate your health benefits, usually at the end of the month. After that, you should receive a notice in the mail called Continuation of Health Coverage, otherwise known as COBRA.
COBRA exists to ensure you don’t let your insurance lapse while you’re between jobs. The law allows individuals to stay on COBRA for up to 18 months, so it provides quite a bit of wiggle room in the event you need it. The drawback is that COBRA comes with a steep cost. In most cases, transitioning employees can expect to pay the entire health premium out-of-pocket, plus a small administration fee on top of that.
If your previous employer contributed a substantial amount to your health premiums, then you may be shocked to discover the price you have to pay while on COBRA. Depending on your location, insurance plan, and how many dependents are on your plan, this can quickly cost anywhere from $500 to $1,500 or more per month. Ouch!
The best thing you can do is is prepare for the cost and consider your long-term options. If either you or your spouse can find a job that offers partial company-paid premiums, this can help offset some of the cost of insurance.
Pay attention to your 401(k)
If you participated in your employer’s 401(k) or other type of retirement plan, then don’t forget to create a plan for those funds once you leave your job.
While you may want to dip into this money to tide you over, this isn’t a wise idea as there are major consequences for cashing out your 401(k) early. Not only are you depriving your future self of the funds you worked hard to save, but the government imposes strict penalties on anyone who withdraws money early. In fact, the Internal Revenue Service charges a 10 percent penalty for withdrawing cash from a 401(k) before you reach retirement age (with a few exceptions). Not only that, but you will have to pay income taxes on any cash you take out of your account.
In most cases, however, you will have to eventually move your money out of your previous employer’s plan – preferably into another type of retirement plan. The new plan can either be part of your new employer’s 401(k) retirement plan, or you can roll it into a self-directed retirement plan.
Budget for new work expenses
Don’t forget about the little expenses that come up about when you switch jobs. These can add up – big time.
For starters, consider the types of supplies and attire you may need for your new gig. Will you need new clothes due to a change in dress code? What about new tools or technologies?
And if your new job is further away, you’ll need to budget in the additional transportation costs as well. Speaking of cars, don’t forget to ask your employer about mileage reimbursement. While some companies don’t provide a reimbursement for miles driven on your personal vehicle, you may be able to claim a deduction come tax time. To find out if your eligible for mileage deductions, it’s advisable to speak to a tax professional.
Ensure a smooth transition
While it can certainly cause a significant amount of stress, making a career move can change your life for the better. With proper financial planning, you can ensure a smooth transition into your next job.