TL;DR

If you've recently switched jobs, you might find yourself wondering what financial moves you should make. The most important things to do include revisiting your overall financial plan, rolling over old retirement account balances, signing up for new insurance, understanding your new compensation, and taking advantage of all available benefits through your new job. Don't leave anything on the table at either your new gig or old employer!

TWO WEEKS' NOTICE OR SIGNED OFFER LETTER? TIME TO PLAN.

The "Great Resignation", also known as the "Great Reshuffle", has led to hundreds of thousands of employees quitting their jobs to find new ones, beginning in early 2021. Possible causes include wages, rising cost of living, long-lasting job dissatisfaction, safety concerns of the COVID-19 pandemic, and the desire to work for companies with better remote-working policies.

On top of this phenomenon, we've also seen thousands of layoffs around many job sectors, but particularly the technology space. In fact, as of early August, more than 34,000 workers in the U.S. tech sector have been laid off in mass job cuts so far in 2022, according to a Crunchbase News tally.

So, did you just change jobs? Congrats (we hope)! Now that the excitement has worn off, it's time to think about your finances and make sure you set yourself up for success at your new gig.

STEPS TO FOLLOW

1. Make sure you have a financial plan.

Changing jobs is exciting, but it's also a big life change. It's a good idea to take a few minutes to consider how this move will affect your finances.

What is a financial plan, anyway?

A financial plan is a roadmap for your everything involving your money. It includes (but is not limited to) cash flow management, investing, education savings, retirement planning, insurance planning, estate planning, retirement planning, equity compensation, and tax planning.

Ask yourself the following:

• What do you need financially?
• What do you want to achieve that will require money?
• When do you want to achieve each of these goals?

Financial planning can be a comprehensive long-term capital sufficiency analysis OR a more modular analysis. Capital sufficiency is a fancy way of saying, "will I save enough over my career so I can sustain myself for the rest of my life after retirement?" A modular analysis is simply looking at each subject matter and performing a standalone review of the various factors on an ongoing basis.

As it relates to your job change, first figure out how much money you'll ask for at your new job — and how much you expect to "net" — before you start looking for work. If you're not sure what your net paychecks will be for a certain level of salary, use the Salary Calculator  to find out what you might be able to expect as your net direct deposit every payday.

Begin with Monthly Gross Income (Salary or Hourly)

• Bi-weekly pay periods = 26
• Semi-monthly pay periods = 24

Subtract the following:

• Retirement plan savings - 401(k), 403(b), Thrift Savings Plan, etc.
• Employee Benefit costs - medical, dental, HSA/FSA, disability
• Income Taxes - Federal, State, City, FICA

Then, create a cash flow plan.

• Monthly Net Income – direct deposit net of taxes & deductions
• (Less: Fixed Costs) – rent/mortgage, utilities, insurance, subscriptions, etc.
• (Less: Variable Costs) - groceries, dining out, travel, entertainment, etc.

Equals: Net Cash Flow Surplus (or Deficit)

Next, make sure all of your accounts are in order. Make sure all of your bills are current and that you have a structured plan in place to crush any other outstanding "bad" debts, such as personal loans, credit card balances, or medical debts.

Pay off any high-interest debt as quickly as possible so that it doesn't cost you more money than necessary. You may want to consider refinancing high-interest consumer debts with lower-interest personal loans from a bank or credit union!

2. Understand your new offer letter.

Your offer letter is an important document that should be read carefully before signing on the dotted line. You want to know what salary and benefits you're getting, and whether there are any incentives for hitting certain sales targets or other performance goals. The offer letter may also include information on other benefits such as 401(k) matches or health insurance premiums paid by the company.

The offer letter will include details about what salary and benefits are included in the compensation package, as well as other information about how much time off employees get, when you can discuss raises and promotions, and whether or not you will be awarded equity compensation (Employee Share Purchase Plan, Restricted Stock Units, Stock Options, etc.) Understanding all of these details can help prepare you for life after your old job so that when it comes time to leave, there aren't any surprises waiting for you.

3. Decide what to do with your old 401(k) account or old pension plan.

One of the first things you want to do after deciding to change jobs is inquire about what options you have for taking your retirement plan with you when you leave. In general, you have 3 options:

1. Take no action, and leave your 401(k) at your old employer.
2. Roll your 401(k) balances into your new employer's retirement plan (if allowed).
3. Roll your 401(k) balances into a new or existing Traditional IRA or Roth IRA in your name.

A rollover is when you take the money in an existing retirement account and transfer it to another retirement account. For many reasons, we typically recommend rolling your old 401(k) to an IRA account in your name. Be careful to not trigger any tax events when doing so! In general, Pre-tax balances should roll to a Traditional IRA, and Post-tax balances should roll to a Roth IRA.

In many ways, an IRA is similar to a 401(k): it's a savings account that helps you save for retirement with some tax benefits. On the plus side, an IRA doesn't have to be tied to your job or employer—you can have one whether or not you have a job.

In an IRA, you can invest the funds in the majority of investments, including stocks, bonds, mutual funds, and ETFs (exchange traded funds). Compare this to being limited to a set menu of investment options and paying administrative costs through your employer's 401(k) account. Rest assured, you can roll your old balances into an IRA account AND contribute to your new 401(k) at your new job.

If you've never rolled over a 401(k) before, the process can seem intimidating at first—but it's actually quite simple. Make sure to understand the pros and cons!

4. Sign up for your new employee benefits at your new company.

One of the major things you'll want to do at your new employer is sign up for the benefits your employer offers, particularly insurance. These could include medical, dental, vision or life insurance. The sooner you get signed up, the sooner you'll start getting coverage from these plans. Sometimes you can elect these benefits before your first day!

If you are losing health insurance coverage, consider buying an extension of your health insurance coverage through COBRA or another plan if necessary. If you have employer-sponsored health insurance through a former employer that doesn't run out until after your start date with a new employer.

If you have medical expenses or dependents (like a spouse or children), then you should also take advantage of being able to sign up for a new company-sponsored health plan. Many companies offer flexible spending accounts (FSA's) or health savings accounts (HSA's) that allow employees to save pre-tax dollars to pay for eligible out-of-pocket medical costs. HSA's can only be used with a HDHP, as described below. FSA's are "use it or lose it", meaning funds in the account leftover at year end are sadly forfeited.

These are the main choices of health insurance plans:

HMO and PPO

• Characterized by higher premiums, lower deductibles, lower out-of-pocket max
• Typically better for those with frequent medical expenses or a large family
• Co-payment (e.g. $25 per visit)
• Save pretax dollars into Flexible Spending Account (FSA)

High Deductible Plans (HDHP)

• Characterized by lower premiums, higher deductibles
• Typically better for young, healthy individuals with no dependents
• Co-insurance (e.g. 20% annual out-of-pocket expenses)
• Save pretax dollars into Health Spending Account (HSA) – triple tax-free

5. Adjust your tax withholdings.

Whenever you get paid, your employer removes, or withholds, a certain amount of money from your paycheck. This withholding covers your taxes, so that instead of paying your taxes with one lump sum during tax season, you pay them gradually throughout the year. Employers in every state must withhold money for federal income taxes. Some states, cities and other municipal governments also require tax withholding.

Consider using a calculator like this one, from SmartAsset to determine your effective tax rate for the year. When you get your first few paychecks, do a quick back of the napkin to see how you are tracking.

Example:

Federal Tax Withheld (1 Pay Period) = $1,100
Federal Taxable Income (1 Pay Period) = 7,000

Effective Tax Rate % = ($1,100 / $7,000) = 15.7%

As long as your effective tax rate matches up well with your estimate, you should be on a good track for the full year. (Disclaimer: This is a very rough way to estimate. Always consult a tax professional or CFP® for additional guidance!)

If you’re a business owner, independent contractor or otherwise self-employed, you will need to make sure you withhold taxes yourself. You can do this by paying estimated taxes or simply setting aside money to pay your tax bill next April, depending on your level of income.

Exactly how much your employer withholds will depend largely on how much money you make and how you fill out your W-4. While you used to be able to claim a certain # of allowances, your withholding is now affected by your claimed dependents, if your spouse works, or if you have multiple jobs. You can also list other adjustments, such as deductions and other withholdings.

When you fill out your W-4, you are telling your employer how much to withhold from your pay. That’s why you need to fill out a new W-4 anytime you start a new job or experience a big life change like a marriage or the adoption of a child.

6. Elect your retirement plan contributions.

How much should you be saving?

• Typically, at least up to your company’s matching percentage or dollar amount (free money!).
• A general rule of thumb for annual savings (from all sources) is socking away 12-15% of your annual gross income including employer contributions every year. If you are on your F.I.R.E (financial independence, retire early) journey, you'll likely need to aim for much higher percentage savings rate.

How should you invest your retirement plan?

1. Your employer picks a custodian (i.e. Fidelity, Vanguard, Empower Retirement) and offers a “menu” of investments to choose from.
2. Research the list of investment options that the plan offers and compare fees. Aim for a mix of US stocks, international stocks, bonds, and cash. This all depends on your time horizon and risk tolerance.
3. Consider selecting a “target retirement date” fund based on retirement year. (Example: Vanguard Target Retirement Date 2060). Target date funds are managed by the fund company and adjust risk automatically over time as you approach the retirement year selected.
4. Consider having a professional look at the options and recommend a mix of funds for your circumstances!

7. Take advantage of fringe benefits.

Fringe benefits are the additional benefits offered to an employee, above the stated salary for the performance of a specific service. Some fringe benefits such as social security and health insurance are required by law, while others are voluntarily provided by the employer.

Examples of optional fringe benefits include free breakfast and lunch, gym membership, employee stock options, transportation benefits, retirement planning services, childcare, education assistance, etc.

The following benefits are provided at the employer’s discretion. On the side of the employer, most of these benefits are taxable, but with certain exceptions.

Examples of these fringe benefits can include:

• Stock options
• Paid holidays
• Education reduction
• Estate planning benefits
• Paid time off
• Commuter benefits
• Achievement awards
• Fitness training
• Employee discounts
• Meal plans

NEXT STEPS

Changing jobs is a fantastic time to work on improving one's financial situation. It's exciting enough to start a new job, but it's also an important time to consider the big financial picture and do the little things right during your transition so you can experience the best financial outcomes. Once you've been on board at your new job for a few weeks and have had time to get settled in, take a few minutes to go through the above steps to make sure you're financially set right now and in the future!

Range is here to help.

With Range, you can connect all your finances into a single dashboard to track, monitor and plan the best version of your life. Say goodbye to middlemen and spreadsheets and hello to the new financial you.

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