Leaving your job can mean making some big life changes. It’s important that you’re prepared so those changes don’t cause you to experience financial hardship or put your future at risk.
The good news is, you can make a checklist to ensure that transitioning to new employment is simple and easy. Just take care of these five financial to-dos so the job switch is a seamless one.
1. Get the right health insurance coverage in place
Leaving your job often means losing your health insurance. Ideally your new company will have a policy you can sign up for, but there’s no guarantee that will happen. Even if your new company has a policy in place, there may be a waiting period before you become eligible for it.
You have a few options to maintain coverage when you leave one job and don’t immediately get covered at another. You could keep your current coverage under COBRA but will have to begin paying full premiums if your employer was subsidizing coverage. Or you could sign up for a plan on the individual market.
Losing workplace coverage is a qualifying life event that will allow you to sign up for a plan on the Obamacare exchange even outside open enrollment. That means you could be eligible for subsidies to help you afford coverage. Be sure to look into that option, because it may be cheaper than COBRA coverage.
2. Collect any accrued vacation time or sick days
If you earned vacation or sick days at work, you’re probably entitled to a payout for the value of those days if you didn’t use them. Make sure you talk to your employer about the policies and process of collecting pay for these unused days, because you could otherwise miss out on hundreds or even thousands of dollars of income you’re owed.
3. Decide what to do about your workplace retirement plans
If you were invested in a workplace 401(k), you have a few options. You could keep it where it is, you could roll it over to an IRA, or you could roll it over into your new employer’s 401(k).
In most cases, keeping the money where it is seems simplest – but if your previous employer’s plan is shutting down or if your balance is too small, that isn’t always an option. Even if you could keep your account where it is, you should still consider whether that’s the best approach. You may be able to get more investment choices or lower fees by rolling the funds over to an IRA or new 401(k), so be sure to compare the terms of each plan.
Don’t forget to sign up for 401(k) contributions at your new workplace as well!
4. Adjust your budget for your new salary
If your salary is changing at your new job, you should adjust your budget accordingly.
Ideally, if your salary is bigger, you won’t adjust your spending upward and get used to living on more. Instead, you should divert some or all of your extra money to retirement savings or other savings goals. That way you’ll never get used to the extra money and you can set yourself up for the future.
If your salary is declining, on the other hand, you should change your spending habits right away so you don’t end up in debt because you haven’t adjusted your lifestyle to match your new reality.
5. Put some cash in the bank to help you through the transition
Depending on when you leave your old job and when your new job starts, it’s possible you’ll go several weeks without a paycheck – especially because many companies pay biweekly, so you may have to work for a while at your new position before your first check comes in.
Try to save a few thousand dollars in the bank to make sure you have cash to see you through until your new paycheck arrives. If you don’t end up needing this money, you can transfer it into savings or use it to pay expenses associated with your new job, such as upgrading your wardrobe for a position of more responsibility.
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Changing jobs doesn’t have to create financial challenges
If you’re organized, prepared, and ready to transition from one job to another, the change should go easy. Just make sure you check off the items on this to-do list so you don’t risk your retirement future or put yourself at risk of catastrophic financial loss because of a health problem while you have a gap in insurance coverage.
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