New year, new job. Right? Sure, job searching is at an all-time high in January — with 22 percent more job applications started on Glassdoor in the United States than in a typical month — however, before you make your next career move there’s one person you should speak to first: a financial advisor.
In spite of the hot job market, a career transition could mean a pause in your income or, worse, an unforeseen unemployment gap. To ensure bills are paid and your savings remain intact, it’s imperative to plan out your financial obligations before diving into the job search.
“A financial plan is one way to help you make a smooth transition and ensure you’re on sound financial footing as you start a new job,” says Rob Williams, VP of Financial Planning at Charles Schwab. “Changing jobs can be both exciting and scary. You may be feeling stressed over all the things you need to consider while making sure nothing falls through the cracks, and one of the best ways to help ensure a smooth transition is by engaging a financial advisor.”
Here is Williams’ top advice for why and how to engage a financial advisor before jumpstarting your job search.
1. Identify aspects of your finances that need to be addressed before leaving your current job.
“It’s important to remember that during a career transition, you will potentially face a break or disruption to your regular income," says Williams. Planning for all eventualities will alleviate stress and ensure a smooth transition.
Consider these aspects:
- Finding out when your insurance coverage ends: Work with your (soon-to-be former) employer to find out when your coverage expires. If it’s before your new coverage will start, you can speak with your employer about using COBRA during that period.
- Calculate pay that’s due to you when you leave: Understand how much unused vacation and sick days, along with stock options and other compensation, that you’ll have before you leave. You can use that income to create a budget for any necessities between roles.
- Decide what you’re going to do with your 401(k): Learn the pros and cons of leaving the money in your current 401(k) plan versus rolling it over into either an IRA or your new company’s 401(k). Think through your plans to decide which will be the best option.
2. Plan your finances before you jump ship.
“As soon as you begin thinking about making a move, you have to consider the financial implications and build out a plan in case you decide to follow through,” says Williams. “As a good rule of thumb, you should begin preparing no less than 2 weeks prior to your departure to give yourself enough leeway for any potential next steps, such as signing up for COBRA or preparing for the 401(k) rollover process.”
When possible, do your research and craft a plan before you notify your boss. “The best practice is to build out as much of a plan as you can before you notify your employer using the information you already know,” advises Williams. “That way, when you notify your employer and get the final information needed, you will be able to quickly finalize and think out your plan.”
3. Do not leave money on the table.
Before submitting your letter of resignation at your current employer, Williams advises you to do a little math to figure out the gaps between your salary and your expenses.
“Calculate the pay that’s owed to you when you leave. From unused vacation to stock options, that will provide an extra cushion. And you can add that to your other finances to create a budget for your time between paychecks,” says Williams. “Your goal should be to get by with the money you have rather than going into debt to cover essential purchases, so makings sure your budget is accurate will help you stay on-track for your other financial goals.”
4. Speak with HR to understand your ongoing benefits.
If you think that your healthcare, employee assistance programs, or 401k ends when you pack up your desk, then you may be wrong. A simple conversation with HR or a read through your benefits guide can tell you a lot about what resources you’ll still have access to after your last day.
“Find out what benefits will follow you after you leave. For example, your HSA should follow you afterwards, which can provide a safety net if you have a gap in insurance during your transition. And with that, find out when your insurance coverage ends. Your coverage should have an end date, giving you a set period between insurance plans where you’ll still have protection.”
Additionally, decide what you’re going to do with your 401(k), whether you’ll roll it over to your next employer as an IRA or simply keep it with your former employer. “If applicable, speak with your financial advisor about what’s best to make sure that you’re doing what’s right for your retirement goals.”
Whatever you choose to do, be sure to understand the benefits and drawbacks of your options.
Already In Between Jobs? Here are William’s Top Tips:
While you’re between jobs, it’s important that you maintain a solid budget. Work to reevaluate and determine your new budget during your time off to avoid getting in debt or stretching any reserve funds you have. And even when you have a new job and salary, you should incorporate these tips into your regular cadence, ensuring that you stay on budget and avoid debt.
Additionally, if you plan to roll over your 401(k) to an IRA, make sure you begin the process as soon as possible. Once your former employer cuts you a check, you have 60 days to roll it over without facing significant taxes and penalties.
Once your new job does begin, these are a few additional considerations:
- Review and sign up for benefits at your new job: Make sure that you sign up for benefits as soon as you can to get back covered by insurance. And even smaller benefits, like HSAs and commuter savings, can add up quickly.
- Set up your 401(k): Also make sure to sign up for your 401(k) as soon as possible, too, so you can get back on track for retirement savings.
- Estimate your tax liabilities: A new income may mean a new tax bracket, so it’s important to review your liabilities. Spend the time to calculate how much you should set aside for taxes, and update your withholding amount on your W-4 if necessary.
- Review your financial plan: Once everything else is in place, update your financial plan to match your new income so that you can stay on-track moving forward.