Here are a few ways to keep your financial ducks in a row, even as you change the way you earn.
Build a savings cushion. Before you look for a new position, it’s always a good idea to save some extra cash to keep on hand. This gives you the luxury of taking your time to find the right job, and it may help with the transition. Once you land the perfect job, it might be a while before you receive your first paycheck or get on your new company’s insurance plan. You can save money by adjusting your 401(k) contributions and income tax withholding, finding secondary sources of income, and modifying your spending habits.
Understand your new salary and benefits. Job seekers tend to focus on how much money they’ll make at a new job, but looking closely at the benefits a new job offers will help you understand the bigger financial picture.
For example, you may want to find out if your new health insurance plan will cost more, or if you’ll have to pay out of pocket for something that was previously covered by your old plan. You’ll also need to know when your new health benefits begin. If it’s not for a few months, your previous employer may be required by law to allow you to pay for your old plan for more than a year after you’ve left. Another option could be switching to a high-deductible plan in case of emergencies (typically a much cheaper option than staying on your former employer’s plan).
Pay attention to possible extra costs associated with the new job. In addition to the possibility of paying a different rate for healthcare, you may have had other benefits at your previous position that will not be offered by your new employer, such as pre-tax savings for childcare and transportation costs or 401(k) contribution matching. You may also have to spend more on less obvious expenses such as a longer commute or a new wardrobe to meet a dress code. When you’re getting ready to make the move to your new position, be sure you have money set aside for such costs.
Prepare a budget based on your new income and expenses. Perhaps you’re changing jobs to make more money. Maybe your new job is closer to home, or you’re pursuing a dream job that also marks a career change. In any case, you’ll have to adjust to whatever your new income will be—either higher or lower.
If your new income is higher, be sure to set aside more savings or adjust to pay off your debts faster. If your income will be lower, it also will require a shift, with an obvious need for spending cuts.
Know your retirement fund options. You may not have any idea what to do with your 401(k) or other retirement savings now that you’re leaving your old job. According to Bankrate, you can handle that money in several ways:
- You can leave the money where it is, in the account set up by you and your previous employer;
- You can roll your 401(k) money into an individual retirement account (IRA); or
- You can take the money and run. However, the option to cash out your 401(k), while always available, rarely is advisable.
- If you do decide to withdraw from your 401(k), be sure to check with a professional about any potential early withdrawal penalties, taxes, or other costs associated with cashing out early.
“The truly smart move for you depends on your own individual circumstances and goals,” notes Bankrate. Take the time to do plenty of research and gather opinions before making any major moves with the retirement money from your last job.
Megan Craig is a Chicago-based journalist and communications professional who writes mostly about personal finance and consumer issues. She is a former reporter and editor for the Chicago Tribune. Follow her on Twitter @megcraig1.
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