6 smart money moves to make when changing jobs

The highlights

The idea of staying with a job long-term may be as outdated as the rotary dial phone. In fact, a recent survey from the U.S. Bureau of Labor Statistics found that as of January 2024, the median employee tenure is at its lowest level since 2002.^{Disclosure 1}

Some of the main reasons workers switch jobs include greater opportunities for advancement, better pay, and work-life balance.^{Disclosure 2} To make the most of a job or career transition, it’s important to carefully consider how it might impact your finances holistically.

“When someone changes jobs, they often have the opportunity to increase their salary,” says Brian Ford, head of financial wellness at Truist and co-host of the Money and Mindset With Bright and Brian podcast. “But what they may not realize is they’re getting fewer benefits, or their cost of living is increasing, or they’re leaving money on the table by cashing out their benefits at the old job before they’ve become fully vested. Careful planning can ensure that each career move is putting you in a better financial situation than the last.”

Before you launch a new job search, here are six financial considerations for a smoother career transition.

1. Decide if it’s the right time for a job transition.

Whether you’re considering searching for a new job or you were given a promotion, a job change can affect many areas of your life. While you can’t predict the exact timing of a job change, considering these factors can help you choose your next steps thoughtfully.

• Family needs: If you have children, what are their school schedules and extracurricular activities? How would those be impacted if you relocated? How would the change affect your spouse or partner’s work schedule and other needs?
• Living arrangements: What are the possible relocation costs? Would you need to break a lease? Are there new commuting expenses?
• Income, benefits, and retirement: Is there an annual bonus offered at your current job, and would you forfeit it with a new job? Are you nearly vested in your current company, and how could the transition impact your 401(k) and vested amounts? Would you need to repay a sign-on bonus or relocation expenses? If a new employer doesn’t cover relocation costs, can you afford to pay for them out of pocket? Do you have unused FSA funds?

“You can’t always know for sure whether the timing is ideal, but it’s important to take a step back and look at the stability of the industry or company you’re going to compared to the one you’re leaving—as well as your position relative to the economy,” Ford says.

2. Prepare your budget and savings for a job change.

A job change could mean new expenses and a potential gap in paychecks or health benefits. Lay the financial groundwork before your transition by reviewing your budget and boosting your savings account.

• Emergency fund: Having an emergency fund that can cover three to six months of expenses may give you more confidence when changing jobs.
• Decrease debt: Try to decrease your debt in the months leading up to a job change. Is there a small balance you can pay off entirely now? This can help lower your overall stress, financial risk, and obligations during a time of transition.
• Save for potential expenses: Maybe you’ll choose to relocate, or you may need to invest in a home office or refresh your professional wardrobe. Consider the potential expenses that can come with a job change and set a goal to save for them.

3. Carefully evaluate the new job offer.

Receiving a job offer is an exciting moment, but don’t be too quick to accept the first offer you receive. Make sure you understand the total compensation package, which includes base salary, health insurance, retirement package, vacation days, flexible work schedule, annual bonus, and signing bonus.

“What type of bonuses are there? Is there an opportunity for stock options? What’s the 401(k) employer match? Is there a deferred compensation plan? What about maternity or paternity leave?” asks Ford.

Also consider the impact if the new job comes with additional responsibilities that may require more travel or additional hours that could increase childcare needs and costs. Knowing what’s important to you and whether the new job offers benefits and a culture that aligns with your values is crucial.

“Sometimes people get too caught up in an increase in their base pay, and while that’s very important, they could overlook their total compensation and wind up earning less overall,” Ford says.

4. Consider the job’s impact on your life goals.

A new job with better compensation and benefits sounds great, but how does it align with your financial and life goals? For example, do you gain a higher base salary but forfeit access to employer stock options? A higher base salary might support your current financial needs, but stock options could contribute to wealth-building over time.

5. Make a new budget, but live below your means.

Once you start a new job, update your budget to account for the new pay rate and any changes to your living expenses. Also, consider the implications if your new salary puts you into a higher tax bracket, or whether your out-of-pocket costs are going to increase with a new medical plan.

“When someone changes jobs, they really have an opportunity to reset their budget and create some new financial goals,” Ford says. “Often, they’re earning more money than they were before, and an updated budget can help them decide how to manage that extra money.”

Ford says one idea is to keep your living expenses the same and use the extra income from a bigger paycheck to accelerate your debt reduction or increase your retirement savings.

“I also recommend putting some into savings, whether that’s for emergencies or a future major purchase, like a car or a home,” Ford says. “An easy way to stay on track is to automate it with each paycheck so that those extra dollars go into a separate savings account.”

Learn more: Listen to the podcast episode, Smart borrowing habits with David Smith, on Money and Mindset With Bright and Brian.

6. Decide how changing jobs can impact your 401(k).

What will you do with your individual retirement account (IRA) or 401(k) when you switch jobs? Sometimes people cash out, but Ford cautions that doing so could cost you thousands, if not hundreds of thousands, of dollars in tax penalties and compound gains over the course of your career.

Some people opt to roll their 401(k) into an IRA for greater control over their investment choices. Traditional IRAs tend to come with more operational costs, such as account maintenance fees, commissions, and expense ratios. A Roth IRA allows you to avoid higher taxes if you ever need to draw from it, though it’s best to avoid it if you can.

“I believe that retirement accounts are for retirement only,” Ford says. “I know people sometimes have to cash them out or borrow against them, but it’s better to think of them as no-touch accounts for retirement only.”

Whether you choose to cash it out or roll it over, just don’t forget about it. If you’re uncertain about what to do about your current plan, ask a financial advisor for guidance. They can explain the detailed considerations for each option and help you follow the right investment strategy.

Read more: What to know about rollovers

Think ahead and set milestones.

Once you’re comfortable in your new job, set milestones to help keep you on track. Are you paying off debt or medical expenses? Saving for a vacation or a new car? How do you juggle immediate financial commitments with your long-term goals of financial independence in retirement?

Thinking through these and other scenarios is a key step that can help you make the right decisions for your financial future.