With unemployment remaining far below its peak in 2010, Americans are feeling confident in the economy and many are looking for new jobs. But before you make the big leap, you should take a closer look at your finances in order to gain the most from switching jobs. Consider these essential money moves before embarking on a new role.
1. Examine your budget. If your new job comes with a bigger paycheck, congrats on the big raise. But before you uncork the champagne, take a moment to devise a good use for that extra money. If you haven’t revamped your budget recently, now is the ideal time to review your expenses. If you have debt or scant emergency savings, experts generally recommend using the new money for faster debt servicing or increased savings.
Speaking of savings, use the time before your job switch to rethink any automatic investment or savings plans, perhaps increasing your contributions to reflect your higher earnings. The same applies for any debt payments. Consider whether you can accelerate repayment of credit cards or student loans, for example. By automating higher investment contributions or debt payments, you can ensure that the extra funds are being put to good use.
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
2. Keep an eye on the benefits picture. A higher salary may be alluring, but if it doesn’t come with benefits equal to or better than your current position’s offerings, you may actually put yourself at an overall financial disadvantage. Consider the bigger picture and compare the perks — everything from lower health insurance deductibles to a higher 401(k) match, bonuses or subsidized child care adds up. If you’re forgoing valuable benefits for a salary increase, the total package may not equal a net gain.
Instead, focus on negotiating a total compensation package that exceeds your current package — not merely your current earnings. If you haven’t switched jobs since the recession, now is the time to research the market value of your skills and experience to ensure that you’re being fairly compensated in your new job negotiations. You might be surprised to learn that you’re now worth more than you expected.
[See: 6 Ways to Treat Yourself on a Budget.]
3. Use it or lose it. Schedule your job transition in such a way that you don’t forfeit benefits offered by your current employer. Incentive earnings, such as commissions and bonus payouts, often occur at specified dates or intervals, such as at year-end or quarterly. Make sure you understand your company’s incentive payment dates and relevant policies, so that you don’t miss any big paychecks coming your way. You don’t want to quit in November and miss a big bonus in December, for example.
Other benefits, such as flexible spending accounts, are offered on a “use it or lose it” basis, so be sure to use any funds remaining in your account. Funds don’t rollover year-to-year, and unused money is forfeited. (Health savings accounts balances, by contrast, are yours to keep — even when changing jobs.) Also key: understanding your company’s unused vacation policy. Depending on your company (or state), your unused paid time off may be paid out upon your departure. If it’s not, consider using your remaining vacation time before resigning, since most employers are sometimes loath to honor a vacation request from an employee who’s about to depart.
4. Secure health insurance. Not all employers offer insurance to new employees on day one, so it’s critical to ensure health insurance coverage (such as COBRA or short-term health insurance) during the transition. Can you afford to cover your own health insurance costs during the 30-day to 90-day waiting period some employers impose on new hires? If not, start saving now to fund transitional insurance, or consider asking your new employer for a sign-on bonus to help cover the cost. And if neither is an option, try to make the most of your current insurance by stocking up on prescriptions and scheduling any critical preventive care before your job departure.
5. Manage 401(k)s and investments. Remembering to rollover your 401(k) is smart, and it has the added benefit of giving you an opportunity to rethink your new retirement account contributions. Assess what worked (and what didn’t) in your previous plan. Can you increase your contributions? Select lower-cost funds or investment options? Diversify your portfolio or rebalance more effectively this time around?
But what if your new employer’s retirement plan features unattractive options, such as high-cost funds or limited investment choices? Consider rolling over your existing funds into a self-directed IRA, or if you’ve met the account balance threshold, leaving your money in your previous employer’s plan.
[See: How to Live on $13,000 a Year.]
6. Consider company stock and options. If you’re fortunate enough to have received company stock or options, it’s important to understand what’s rightfully yours at the time of departure. Contact your human resources department to clarify your vesting schedule and consider cashing out at an opportune time. Many companies require that former employees exercise stock options within 90 days of departure, so prepare accordingly. Another key note: You’ll receive a tax bill for this compensation, so plan for this cost in advance.
Switching jobs can be an exciting time, full of new opportunity and increased pay. With a little preparation, you can also ensure a smooth financial transition that will benefit your pocketbook in more ways than one.
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6 Smart Money Moves to Make Before Switching Jobs originally appeared on usnews.com
