From layoffs to new opportunities or even pursuit of a new passion, changing jobs is riddled with decisions that can have a lasting financial impact.
According to the Harvard Business Review the average person spends more than 90,000 hours at work. Which translates into one third of many people’s lives. With work consuming so much of our lives I believe you should like what you do. However, enjoying what you do, and what you wish to make are often conflicting items. A recent YouGov survey suggests that 74% of workers like or love their jobs. Are you part of that 74% figure?
In this post I want to help examine what to do before, during and after a job change be it voluntary or due to a layoff. I want to break this down between the two as well because they come with different decisions and financial implications.
Job Change vs. Layoff
Be it a desired promotion, recruited out or looking for a new challenge, a job change can be of great benefit. Changing to a new firm and position is an exciting time. A job change is typically used to negotiate better terms such as pay, vacation, benefits and even company equity. Moving strategically can have long-lasting financial benefits. According to ADP, job changers saw wage increases of 15.2% compared to those who remained at 7.7% in 2022. However, due to current affairs the Atlanta Federal Reserve reported back in February that those who remain are seeing a higher increase in pay over those who switch jobs with stayers seeing a 4.3%-4.6% wage growth and switchers at 4.1%-4.8%.
In considering a change I believe things such as company values and culture are becoming more front and center than ever for people over simply pay. What flexibility and family benefits are available for a family with young kids? What programs for education and advancement are there? What does the company donate to? These are all keys to being a part of the 74% of workers who love their job.
Now, layoffs. They are painful and filled with a whole bevy of emotions. Financially they can be devastating to those who are unprepared. It can be rife with uncertainty if you are at the end of your working years and not sure if you can yet retire. Many receive generous severance agreements to cushion the blow and assist financially in the interim of a job search.
It is sometimes more than the money though it is loss of benefits that were necessary and having to switch to paying for expensive health insurance out of pocket, or even a loss of daily purpose that you enjoyed. Colleagues who were friends may no longer be apart of your circle.
Both of these scenarios are an opportunity for self-examination into what you need in your current season, reset your priorities and goals, and permission to dream about what is next.
The Before
Be it you are actively looking for a new position to change firms or you know a layoff is coming there are steps that are financially prudent leading up to it.
11)Review your spending. Break this down into bills (monthly obligations, food), Needs (enjoyment, personal care, etc.) and Extras (eating out, unused gym membership, shopping). Have an idea of what your base monthly need is from bills, then bills and needs. This will help you know what to cut if times are hard, or if you have a break between jobs.
22)Emergency fund. You should have 3-12 months of bills and even possibly needs depending on the necessity saved up in a separate account. If you know a job change is coming, cutting back and stock piling cash is a good thing to start doing.
33)Locate accounts. Make sure you have logins for retirement accounts, FSA/HSA accounts and any other benefit account you received from the company. Have a plan of action ready for when you separate.
44)Taxes and PTO payout. Have a plan to account for possible increased taxes from a severance. There are flat withholding rates on the amount, and it could mean you under withhold which could result in a surprise come tax time. Have a plan for the additional funds you receive from paid out PTO and sick leave that was unused, will it bolster your emergency fund or will that assist with paying for health insurance.
The During
Changing Jobs:
11) Fully review the new benefits offered. Can you keep your doctors with health insurance? Does your new income bump you into a new tax bracket? Pet insurance, yes please! One big one is understanding equity compensation if that is new to you. These are stock options that the company uses a financial incentive and bonus. They come with decisions, tax implications and typically an overconcentration in company stock. Understanding when to buy in, or when to sell is important as well.
22)Keep spending level. Avoid lifestyle creep with increased income. Sit with the new paycheck for a while and stockpile cash while you come up with a plan on how to proceed while you get comfortable. There may be things you need such as more living space, a new car or even a vacation. Just have a well thought out plan and avoid the impulse buy. This is also a great time to increase savings into retirement with increased income.
33)Execute the plan. In the before you had a plan for your accounts at your previous employer. Make sure whatever plan of action you decide upon is implemented. Don’t forget to still spend the FSA money!! While you can leave your account where it is forgetting about them can be costly if you do not adjust your investments, fees increase unknown to you, or it gets moved without you being aware. It is estimated from a report done by Capitalize that there is $1.65 trillion left behind 401k accounts.
Layoff:
11)Cut back your spending. Bring it down to your bills and bare needs. This will help extend the draw on emergency funds and the severance pay.
22) Begin looking for your next position. Know what the monthly runway is based on your savings and payouts. You do not have control over certain things such as landing the perfect job, but you will know when you might need to accept something less than perfect if it becomes available.
33)Retire or not. This is a hard question for something at the end of their working years. It is a complex and forced mindset shift. I have seen a full array of things happen, full retirement is not a problem; a part-time job is needed or going back to work is essential. It starts with answering what your spending needs and goals in retirement are. Helping someone through this scenario is where financial advisors such as myself can be most beneficial.
After
You are in your new job or even retired. Now is a great time to readjust and reprioritize if needed.
11) Increased income. What new goals do you have for you and your family? Is saving for that beach home now finally possible? Or is saving turbo saving for your kids’ college education the plan? Before jumping into a bigger home or buying designer shoes, stop to think of the bigger picture and pay your future self first.
22)Living on a fixed income. It is an adjustment to switch from saving to spending what you saved. Ensuring you are spending at a level that allows for your longevity is essential, but living life is also important. Take stock on what is working and what isn’t and adjust where you can. Remember you can take none of it with you when you die so spend it with just as much care and intention as you earned but also have a plan with how to pass it on if there is money left over.
Final Thoughts
A change in jobs can be reinvigorating and it is a time to reevaluate a lot. Make sure you have a professional or community to bounce ideas off of because you should never go at it alone.
If you are reading this because you are going through this, I wish you all the best in your next chapter. If I can help, I am here to do so, but for clarity’s sake consider downloading my roadmap to financial wellness as help to take stock and realign.
Thank you for reading.