Getting your finances in order after a new job

Accepting a new career opportunity can be a very exciting and rewarding time, but a new job can also bring some adjustments to your finances that you’ll want to be on top of to ensure a smooth transition. With a potentially new paycheck, company benefits, and insurance policies to coordinate, here are some helpful tips for organizing your finances after a career change.

Budgeting your paycheck for better savings

Along with the excitement of jumping into a new role, there is also a chance to reorient yourself financially by updating your budget, finding savings opportunities, and making sure you’re still on track for your future goals. You’ll likely want to find out what the pay period is for your new job, in case it differs from your previous company.

If your organization is similar to most employers, you can likely count on a bi-monthly paycheck. To live comfortably between pay periods and help put more toward your savings, a budget will be key. A common strategy is breaking down your paycheck by the 50/30/20 rule of thumb. Fifty percent of your pay will go to essentials like your rent/mortgage, groceries, utility bills, and regular expenses. Thirty percent of your paycheck is reserved for non-essentials, including entertainment, dining out, and travel.

The remaining 20% would then be allocated to personal savings and financial goals. This could include paying down debt, building an emergency fund, and putting money toward retirement. If your paycheck frequency becomes more often and you’re getting paid every week, you may want to update your budget to spread out bill payments throughout the month, since money will be coming in more regularly.

As you build a budget around your new income, it is also good practice to review your first few paychecks to be aware of your payroll deductions. Mandatory deductions like federal and state income tax are likely outside of your control. But it is important to audit your other pre-tax deductions, such as monthly benefit premiums and 401(k) retirement plan contributions, to ensure the deduction amounts align with the benefits programs you enrolled in. As you organize your budget, remember to use your net pay, or the amount remaining after your payroll deductions have been subtracted, to calculate how much money can be allocated to each area of your budget. Even if your new job comes with a higher paycheck, you don’t need to change your day-to-day expenses if it’s not necessary to do so. Instead, this could provide an opportunity to put more toward savings, reduce debt, or contribute more to your retirement account(s) for the future.

Maintaining your retirement savings momentum

Every step in your career is likely a step towards a financially sound retirement, and oftentimes, moving into a new role may reveal fresh opportunities to save more for your future. Take a proactive approach to familiarize yourself with your new benefit offerings to maximize your savings opportunities. Perhaps your compensation package contains a higher employer match on your 401(k), but you need to ensure your own contribution is sufficient to be eligible for the full employer portion. Or your new company may offer stock ownership opportunities, but it requires active enrollment into their stock program. Since you’ve worked hard to begin building for the future, it’s important to keep that retirement savings momentum going with a simple review of your existing retirement accounts to determine how best to move forward with the new options available to you.

If you have a 401(k) with your previous employer, you have a few options depending on your personal goals. You can leave the account where it is and no longer contribute to it; roll it over to your new employer’s 401(k); take a lump sum distribution, known as cashing it out; or roll it into a traditional or Roth IRA outside of your new employer’s plan. You may want to talk to your financial professional about what may be your best move based on your current account balance, tax implications, withdrawal fees, and savings options outside your previous and current employer.

What happens to your retirement account when you change jobs?

If you decide to leave your 401(k) with a previous employer, your funds will continue to be managed and your money will grow based on the investment option selected, but you will no longer be able to make contributions to that account. If your account balance is less than $5,000, your former employer may require you to move it into an IRA. If you go this route and keep your account with your former employer, be sure to keep that account on your radar and keep your contact information with the plan sponsor current.

Do you have to roll over a 401(k) when you change jobs?

If you prefer to keep your assets all in one place, you will likely have the option to roll over your 401(k) to your new employer, but it is not required. However, accounts held with your previous employer may now incur monthly processing fees that you may have to pay as you are no longer part of their group plan. Verifying the cost of maintaining your previous accounts could influence whether or not you decide to consolidate your 401(k) savings. You may be able to organize a direct 401(k) rollover, which will transfer funds from your previous employer’s 401(k) to your new plan without incurring taxes or penalties. It’s important to check with your new company’s plan administrator to see if rollovers are permitted and what steps are required.

Taking advantage of company benefits

Your paycheck and retirement benefits are likely not the only change that will come with your new job. Your compensation package may include new coverage policies, flexible or health spending accounts, paid time off, bonuses and commissions, childcare, student loan repayment, and tuition reimbursement. Take time to read all the information you receive on your benefits so you can understand which ones require employee enrollment and if there are eligibility waiting periods. Certain benefits, such as company-sponsored short-term and long-term disability coverage, often require up to a year of service with the company before you are able to apply the benefit. Be aware of these waiting periods and explore supplementary coverage options to make sure your income and health are fully protected throughout your first year of employment until waiting periods are met.

Upon starting at your new employer, keep an eye out for emails about benefits enrollment or informational events. You can also reach out to the hiring manager or Human Resource representative if you have questions about any of your benefits or company perks.

Make sure insurance policies don’t lapse

Benefits such as medical, dental, and vision insurance coverage will likely terminate within the 30 days following your last day of employment with your previous employer. It is important to confirm those details to ensure you do not have any gaps in coverage. If you are transitioning from a previous medical plan to your new employer’s medical plan, it is good practice to fill prescriptions or schedule your regular doctor’s appointments prior to coverage termination because it can take over a week for a new insurance company to recognize you as a member in their system. You will be offered COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage to continue your previous employer’s health coverage for 18 months, but this option is usually more expensive as you forfeit the company’s contribution to your monthly premiums and you begin to pay the full cost of the plan. Another important consideration is your group life insurance coverage, which will likely end but may have options for you to convert the coverage to an individual policy.

Eligibility for the benefit programs at your new company can start anywhere between your first day or your ninetieth day of employment with them. Be sure to review when coverage will go into place and check your onboarding packet for deadlines to enroll. You often have to make enrollment decisions within the first month of employment and, if this deadline is missed, the opportunity to elect coverage may be closed until the next annual open enrollment timeframe.

Starting a fresh chapter in your professional life can be a thrilling time that opens the door to new challenges and experiences. Shifting to a new job can also provide a good opportunity to meet with your financial professional and review your financial plan to fine-tune your budget, make updates to any goals or timelines, and discuss ways to put more money away for the future. When you plan appropriately during this transition, you can help reduce any financial challenges and make the most of this exciting time in your career.

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