New job checklist: organizing your finances after a career change

Starting a new career can be both exciting and fulfilling, but this life event often comes with financial changes. From adjusting to a new paycheck to navigating company benefits and insurance policies, staying organized is key to ensuring a smooth transition. Here are some practical tips to help you manage your finances effectively after a career change.

Determine ways to manage and save money during a career change

When changing jobs, it can be a great opportunity to revisit your financial priorities in preparation for the transition. If there’s been a gap between jobs, focusing on rebuilding an emergency fund may become a top priority. Once you begin receiving regular paychecks again, it can be easier to resume progress on savings goals, even if it’s in small steps. A career change can also be an ideal time to:

• Adjust the budget to reflect any changes in salary or benefits, and track job-related expenses that may affect finances, such as commuting costs.
• Review new health insurance options and compare them with previous coverage to avoid any gaps in coverage.
• Take advantage of employer-sponsored retirement plans by contributing regularly, especially if there’s a match.
• Focus on paying down debt with a structured plan
• Adopt healthy money habits that help improve financial fitness With these factors in mind, a strong financial foundation can be rebuilt after a career change, helping to realign financial priorities for the future.

Boost savings by budgeting your paycheck

Stepping into a new role can present an ideal opportunity to make informed financial decisions and create a solid budget that reflects your new income, benefits, and financial goals. It’s also a chance to reassess your overall financial situation by updating the budget, identifying potential savings, and ensuring that future goals remain on course to support long-term stability and success.

Make sure to find out what the pay period is for the new job, in case it differs from the previous company. For most organizations, employees can expect a bi-monthly paycheck. To manage finances effectively between pay periods and increase savings, a budget is essential. One popular method is the 50/30/20 rule. Fifty percent of the paycheck is allocated for necessities such as rent or mortgage, groceries, utilities, and other regular expenses. Thirty percent is set aside for discretionary spending, including entertainment, dining out, and travel.

The remaining twenty percent should be allocated toward personal savings and financial goals, such as paying down debt, building an emergency fund, and contributing to retirement. If the frequency of paychecks increases to weekly, it may be necessary to adjust the budget to distribute bill payments more evenly throughout the month, as income will be coming in more regularly

Review payroll deductions

When creating a budget based on a new income, carefully review the first few paychecks to fully understand payroll deductions. While mandatory deductions like federal and state taxes are typically consistent, it's important to examine other pre-tax deductions, such as monthly benefit premiums and 401(k) contributions, to ensure they align with the benefits programs you've enrolled in.

The remaining net pay, after these deductions, should show how much can be allocated to various areas of the budget. Even with an increased paycheck, there's no need to adjust daily expenses unless necessary. This could be an ideal time to direct more funds into savings, pay down debt, or increase contributions to retirement accounts for long-term financial growth.

Keep a 401(k) after leaving a job to continue growing retirement savings

Every stage of a career can play a role in securing a financially stable retirement, and transitioning to a new position often brings fresh opportunities to save for the future. It’s essential to thoroughly review the new benefits package to maximize savings potential. For instance, if the new job offers a higher employer match on a 401(k), it's important to contribute enough to take full advantage of the match.

If stock ownership options are available, ensure active enrollment to benefit from the program. After making progress in building retirement savings, it can be crucial to keep the momentum going by evaluating existing retirement accounts and determining the best course of action with the new options available.

What happens to a retirement account when you change jobs?

If a 401(k) is held with a previous employer, there are several options depending on personal goals. The account can be left where it is, with no further contributions; rolled over into the new employer’s 401(k); cashed out as a lump sum distribution; or rolled into a traditional or Roth IRA outside the new employer’s plan. It may be beneficial to consult with a financial professional to determine the best course of action, considering factors such as the current account balance, tax implications, withdrawal fees, and other available savings options.

When a 401(k) is left with a previous employer, the funds will continue to be managed and grow according to the selected investment options, but no further contributions can be made. If the account balance is less than $5,000, the former employer may require the funds to be moved into an IRA. If you choose to leave the account with the previous employer, it is important to stay informed about the account's status and ensure that contact information with the plan sponsor is kept up to date.

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

For those who prefer to keep their retirement assets in one place, rolling over a 401(k) to a new employer’s plan is usually an option, though it’s not mandatory. However, keeping an account with a previous employer may result in monthly maintenance fees, as the individual is no longer part of the company’s group plan.

Be sure to review the costs of maintaining an old 401(k), as this may influence the decision to consolidate savings. A direct 401(k) rollover can transfer funds from the previous employer’s plan to the new one without triggering taxes or penalties. Make a point to check with the new plan administrator if rollovers are permitted and what steps are required to complete the process.

Make the most of new company benefits and adjust finances accordingly

In addition to changes in salary and retirement benefits, a new job may offer a compensation package that includes various benefits like health coverage, flexible spending accounts, paid time off, bonuses, childcare assistance, student loan repayment, and tuition reimbursement. Carefully review all the benefit details to understand which ones require enrollment and if there are any waiting periods for eligibility.

For example, company-sponsored short-term and long-term disability coverage may require up to a year of service before it becomes available. Being aware of these waiting periods and considering additional coverage options can help ensure your income and health are protected during the first year of employment until eligibility is reached.

Check benefit program eligibility

Eligibility for benefit programs at a new company can begin anywhere from the first day to the nineteenth day of employment. Take time to review when coverage will start and check the onboarding packet for enrollment deadlines. Enrollment decisions typically need to be made within the first month of employment, and if the deadline is missed, the opportunity to elect coverage may be postponed until the next annual open enrollment period.

Building a budget and preparing for the next phase of a career means understanding when benefits start, what they cover, and their costs. For instance, when reviewing employer-provided life insurance, check if the coverage amount offered by your new employer is the same as your previous job, and consider whether you need additional coverage. By thoroughly evaluating all your benefits, you can help ensure financial stability and make more informed decisions about benefits and expenses.

Supporting long-term financial goals and budgeting plans

Beginning a new phase in your career is an exciting time, filled with new opportunities and challenges. A job change can also provide a great time to consult with a financial professional to reassess and update a financial plan, refine the budget, set new goals and timelines, and explore strategies for saving more for the future. During this review, it can also be helpful to explore how life insurance and annuities can complement the benefits offered by a new employer and enhance financial security. Thoughtful planning during this transition can help reduce financial stress, maximize opportunities, and ensure a successful new chapter.

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