The professional world is changing fast, and staying with a job long-term is no longer the norm. And in the aftermath of the COVID-19 pandemic, a record number of workers have left their jobs for better opportunities—a phenomenon called the Great Resignation. (In January 2022 alone, nearly 4.3 million people handed in their notice!Disclosure 1)
Of course, how long you stay with a job depends on a lot of factors—like where you live and what industry you work in. But by all accounts, job tenure has shrunk over the past decade, with younger workers switching jobs far more frequently than older workers. In fact, according to October 2021 data, on average:Disclosure 2
- Gen Z workers stay at the same job for 2 years, 3 months.
- Millennials stay at the same job for 2 years, 9 months.
- Gen X workers stay at the same job for 5 years, 2 months.
- Baby Boomers stay at the same job for 8 years, 3 months.
"Careful planning can ensure that each career move is putting you in a better financial situation than the last." –Brian Ford, head of financial wellness, Truist
That means if you haven’t already considered a job change, you probably will soon. To make the most of your next job, carefully consider how it will impact your finances holistically.
“When someone changes jobs, they often have the opportunity to increase their salary,” says Brian Ford, Truist’s head of financial wellness. “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.”
Here are seven smart money moves to make before and after a job change.
1. Carefully evaluate the new job offer
Make sure you understand the total compensation package. That includes base salary, health insurance, retirement packages, vacation days, flexible work schedule, annual bonuses, and signing bonuses.
“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.
Knowing what’s important to you and whether the new job offers benefits and a culture that aligns with your values is crucial. “What type of bonuses are there? Is there an opportunity for stock options? What’s the 401(k) match? Is there a deferred compensation plan? What about maternity and paternity leave?” asks Ford.
2. Consider the job’s impact on your life goals
A new job with better compensation and benefits sounds great, but will the hours or travel cause you to compromise on your long-term goals, such as putting down roots, building a family, or pursuing your interests outside of work?
On the flip side, a new job with a lower salary may be a perfect match for your passions, but can you make ends meet, pay off student loans, and save for the future with a smaller paycheck?
Think about what you value most and where you want to be in 5, 10, or 15 years. Will the new job get you the right skills and experience to get you there?
Read more: 6 wise ways to evaluate a job offer
3. Decide whether the timing is right
Even if a job opportunity sounds ideal, the timing might not be. Ask yourself a few questions before you accept a new job:
- Does your current job always give a bonus at a certain time of the year? Then it might make sense to wait until then to switch jobs.
- Are you within a year of being 100% vested in your employee benefits? Consider staying the course so you don’t forfeit potentially thousands of dollars in retirement savings.
- Do you have a plan for rolling over your 401(k) when you switch jobs?
- Is the economy stable enough to take on the uncertainty of a new job or a job in a high-risk industry, such as travel or hospitality?
- Can you afford to relocate right now? Are you and your family ready for a big move?
“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.
4. Prepare your budget and savings for the new job
Prior to changing jobs, try to streamline your expenses and boost your savings account. If you’re relocating, are there local memberships you can cancel, like a gym membership? If the new job is remote, how much will you save each month on gas?
Laying the financial groundwork can help you navigate a potential gap in paychecks or health benefits as you transition to your new job. Having an emergency fund that can cover 3 - 6 months of expenses as a safety net will give you a lot more confidence when changing jobs, too.
Likewise, try to decrease your debt—and at the same time, avoid taking on additional debt—in the months leading up to a job change. Is there a small balance you can pay off entirely before your job change? This can help lower your overall stress, financial risk, and obligations during a time of transition.
Read more: 3 steps to help you ease debt stress
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 whether 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.”
6. Decide what to do with your retirement plan
What will you do with your IRA or 401(k) when you switch jobs? Sometimes people cash out—but Ford says that’s the wrong move, and it could cost you thousands, if not hundreds of thousands, of dollars in tax penalties and compound gains over the course of your career.
“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.”
On the flip side, there are an estimated 24 million forgotten or abandoned retirement accounts containing $1.35 trillion in assets owed to former employees.Disclosure 3 In many cases, these are plans that people simply forgot they had.
Instead of cashing out or losing track of your retirement account, ask a financial advisor for guidance on what to do with your current plan. They can explain the detailed considerations for each option and help you keep track of each account.
Read more: 5 key retirement planning tips from real retirees
7. Stay the course
You’ve evaluated and prepared for a new job. Now it’s time to dive in and embrace the new opportunities that come with it. Just don’t forget to follow through on the financial goals you’ve set.
“Enjoy the job, but also stick to the plan and your new budget,” Ford says. “This is an opportunity to set a new baseline for your work ethic and your mindset. When I teach personal finance, I ask people what their number one income-earning asset is. It’s not your 401(k) or the housing market—it’s you. Invest in yourself and try to make thoughtful moves at every step.”