I’m changing jobs. How do I cover all of my bases financially?
One of the key values of financial planning is having a planner proactively guiding you through the ups and downs of your life. We help you anticipate life transitions and make sure you are financially prepared for them. One of the most common transitions each of us will face in life is changing jobs. In fact, the Bureau Of Labor Statistics reported that individuals between 50 and 60 have now held an average of 11.9 jobs from age 18 to age 50, with nearly half of those jobs being held from ages 18 to 24.
This isn’t necessarily a bad thing. For most, their career and resulting income are the greatest financial asset they will ever have. If maximizing your professional growth and income potential is limited in your current position, it may be a good financial and life decision to pursue other paths. If you are unhappy in your current position, it is especially important to figure out what you can enjoy as a career and begin the path to make that a reality. Easier said than done of course, but the point is, changing jobs is inevitable and sometimes a necessity in life. Here are some important things you need to consider when you make the change.
Don’t forget about your old retirement plan, if you had one! What you can do with your old plan will vary depending on the type of retirement account. However, most can be rolled over to an IRA or to a new plan with your new employer. Regardless, make sure you reach out to your human resources department to go over all of your options. Of course, having a trusted financial planner to help guide you never hurts.
Don’t forget about your new retirement plan, if you can participate in one! After you’ve figured out what to do with your old plan, it’s equally important to get setup on your new plan. At a minimum, you should try to max out your new company’s match, if they have one, and set up an appropriate investment allocation. Again, this will depend on the type of plan available to you and its characteristics. Never leave free money on the table!
Your Insurance Benefits
Retirement accounts are a fairly well-known employer benefit. However, there are often other benefits available to you that are forgotten or overlooked. The most significant of those are probably your insurance options. The important pieces to keep in mind and look for are health insurance, life insurance, disability insurance, and vision and dental insurance.
Each of these are important to both your physical and financial health. We all need health insurance. Getting it through your employer will almost assuredly be cheaper than an individual policy. The same is true for vision and dental insurance, if you will regularly use each. For life insurance, generally there is only a need if you are married, have children, or have someone else who is dependent on your income. Again, a trusted financial planner can help you determine how much you potentially need.
I want to touch on disability insurance as well. This is often an overlooked form of insurance but can be one of the most important. If you are ever unable to work, you would lose your primary source of income. Again, your career and the resulting income are often your greatest financial asset. It makes sense to insure that asset. Typically, annual premiums are fairly affordable (1-3% of your income), especially considering the alternative of being unable to work and having no replacement income. Don’t overlook this important piece of your insurance planning!
For each of these benefits, it’s important to make a comparison between what you were previously receiving and the options available to you moving forward.
Budgeting and cash flow probably have the largest impact on your financial success, and changing jobs can significantly affect each. Salary is important, but your retirement savings options and insurance benefits tie into your overall budget as well. It’s important to compare previous costs with your new costs and figure out exactly what the difference in your take home income after those items are expensed out will be. Then account for that difference in your overall budget. Always live within your means. Yes, your cash flow has a large impact on your finances, but fortunately it’s one of the areas of your life where you have a decent amount of control. So stay proactive and make good spending decisions.
Maximizing Your Human Capital
As I mentioned at the start, if maximizing your professional growth and income potential is limited in your current position, it may be a good financial decision to pursue other paths. It’s important to maximize your human capital throughout your life. However, this transition can be a stressful and arduous one. But if you keep these things in mind, and maybe have the assistance of a trusted financial planner, you will make it through and hopefully be all the better for the change.
That doesn’t mean it will be a piece of cake. My wife and I have gone through her transitioning into two different full-time positions in less than a year. While it’s a lot to tackle, you can handle it. Please contact me if you think I can assist you in any way and remember the words of Winston Churchill: “If you’re going through hell, keep going.”