6 Smart Money Moves When You Start a New Job
Getting hired means it's time to reassess your finances
Finding work takes work — sending out well-crafted resumés, going on interviews, networking like mad… But experts agree there’s something else all new hires need to do, even ones who’ve been in the workforce for decades: make key financial moves related to the new job.
“Starting a new job is like starting a new school year; it's another chance at a fresh start,” says Liz Weston, personal finance expert and columnist for NerdWallet.
Here are six vital money moves to make after getting hired or starting a side business:
1. Create an updated financial road map. Whether your new work comes with a healthy raise, brings in extra income through a side hustle or follows a period of unemployment, the boost to your bank account is a good time to review your budget and make appropriate adjustments.
“It’s a good opportunity to reset your spending and savings,” says John Sweeney, executive vice president of investing and strategies for Fidelity Investments.
For the spending side, Sweeney suggests budgeting to pay off outstanding debts. To reset your saving, he says, try to save at least 15 percent of your income, build an emergency fund and stash cash in a retirement account.
2. Transition your old retirement plan. When you bid farewell to your previous employer, you also said goodbye to its retirement plan. Before contributing to a new 401(k), take care of the old one.
“It’s challenging to see how your money is allocated if it’s invested in multiple accounts,” advises Sweeney.
You can roll over existing 401(k) accounts into your new employer’s plan or into a traditional IRA.
Review the benefits package from your new employer for information about your eligibility to participate in its 401(k). While some companies allow immediate enrollment, others require new hires to be in their positions for six-to-12 months. The 2016 contribution limit is $18,000 or $24,000 if you’re 50 or older.
For a 2016 small-business SIMPLE 401(k), you can put away $12,500 or $15,500 if you’re 50 or older.
If you’re not eligible for your new employer’s 401(k) right away, set up an IRA and continue making contributions. “As long as you’re working, it’s critical to keep saving,” Sweeney says.
3. Sign up for benefits. It can be overwhelming to flip through your new employer’s benefits package and decipher the various insurance options. But it’s essential.
Instead of picking a health insurance plan at random, make an appointment with a human resources representative to discuss the options. And take the time to compare health plan offerings to find the best one for your circumstances.
During the HR meeting, also ask whether you can purchase life insurance and disability insurance through your employer. If you’re eligible, then assess your current life and disability coverage to decide whether to sign up at work.
4. Establish a triple-tax-free Health Savings Account (HSA) if one is offered. This account can be very useful when your new job comes with a high- deductible health insurance plan — an annual deductible of at least $1,300 and a $6,550 out-of-pocket maximum; for families, a deductible of over $2,600 deductible and $6,750 in maximum out-of-pocket costs.
With an HSA, your money goes into the account before it’s taxed, grows tax-deferred and can be withdrawn tax-free to pay unreimbursed health expenses, including your deductible, co-pays, prescriptions and eyeglasses. You’re allowed to contribute up to $3,350 ($6,750 for families) to cover qualified medical expenses.
“Although HSAs are meant to help you pay current medical expenses, you actually get the biggest bang for your buck letting the money grow as long as possible,” Weston says. “A lot of people who fund them do so with the idea that they'll use the money for medical expenses in retirement.”
5. Repair damaged credit. If you experienced a period of unemployment before landing a new job or your former salary fell short of covering your expenses, you might have ended up paying bills late or missing some payments. As a result, your credit may have suffered.
In this case, go to Annualcreditreport.com and request a copy of your credit report. You’re entitled to one free copy annually from each of the credit bureaus: Experian, Equifax and TransUnion.
Be sure to request copies from all three credit bureaus and review the details on each of their reports. If you spot any inaccuracies, dispute them quickly, since they may have improperly lowered your credit score. Review other credit issues, including late or delinquent payments, and start taking action toward fixing them.
6. Pay down your debt. It might be tempting to spend all of your first paycheck on a new work wardrobe or a celebration in honor of your new job.
But Beverly Harzog, a consumer credit expert and author of The Debt Escape Plan, suggests instead allocating a portion of your new salary to paying off debt.
“Go through every line item in your budget and decide where you can cut or eliminate expenses,” Harzog advises. “Then, apply the ‘extra’ cash to the minimum payment [on your credit cards].”
If you have debt on multiple cards, consider paying off the account with the highest interest rate or the one with the lowest balance.
“You'll save more money by paying off the balance with the highest [rate] but some folks get a nice psychological boost from paying off the account with the smallest amount first,” Harzog says.