It is very common to have several employers or different jobs during your working career. You may be building up your experience to land your ‘dream job’ someday or even going out on your own to start a business. Whatever your plan, there are important aspects of your financial life to consider before and after you make a switch.
1) Cash Reserves – You may have heard about the rule of thumb to keep 3 - 6 months of living expenses in cash for emergencies. Now is when this comes into play! If you are making a lateral move in terms of income and can secure your next job before leaving your current one, you can probably get by on a minimal cash cushion. However, if you are moving into a sales role or a position that will take time to grow your income, you need to build a longer runway and cash reserve in advance. Even the best laid plan may take longer to execute or cost more to keep it going than originally expected.
2) Health Insurance – If at all possible, you don’t want to have a gap in health insurance coverage. If you are younger and in good shape that doesn’t mean you will never get sick or injured. Many employers offer health insurance, and you can ask to see details about their plan before you are hired to make sure your doctors are in the network. If you won’t have insurance, COBRA is typically available as continuation coverage for up to 18 months or you can also shop the federal health insurance marketplace, healthcare.gov (in PA go to pennie.com), to look for coverage options. These plans are often from reputable carriers and the premiums could be discounted if your income is low enough during the time when you need the coverage.
3) Retirement Accounts – Check into your 401(k) vesting schedule before typing up your termination letter. At some point, the employer contributions made to your retirement account become yours even if you leave, by what is called vesting. Maybe sticking it out for a few months could give you a bigger portion of your retirement account balance to take with you. You should also consider consolidating pre-tax accounts like 401(k)s and IRAs along with Roth 401(k)s and Roth IRAs. Further, it may benefit you to rollover your old 401(k) into your new 401(k) if the plan allows it. Do yourself a favor and keep the management of your finances simpler by reducing the number of accounts you have to manage.
4) Your Long-Term Goals - Planned or unplanned, changing jobs impacts many aspects of your life. Consider creating a financial plan for retirement or updating your existing one to see the ‘big picture’ impact of how an income change and the amount you are able to save could have on your future plans.