How to Manage Your Finances During the Transition to a New Job
Whether a career transition is planned or unexpected, it triggers various time-sensitive financial questions. The fast-paced changes in today’s economy, technology and workforce mean we must stay prepared as more opportunities and restructuring arise. In 2021 alone, 53% of Americans quit their jobs for a career change, so if you’re transitioning jobs, you’re far from alone.
Managing your finances when starting a new job can be challenging, but with some preparation and forward thinking, you can remove the stress and look toward the next stage of your working life with excitement and confidence.
How to Prepare Financially for a New Job
Transitioning to a new job is exciting, but it also requires planning — career-wise and financially. Whatever your next career move, having a plan to support yourself and loved ones in the meantime is essential. With some preparation and forethought, you can make the transition as smooth as possible.
The following tips can help you minimize stress and friction as you move on to your next exciting opportunity:
1. Prioritize Your Savings
When you decide on a career change, it's time to prioritize boosting your savings. You may have a period without an income between when you finish one job and start the other, so your savings will play a key role in your financial situation.
An emergency fund can cover unexpected expenses during your transition period, such as if you need to start paying for health insurance that your previous employer covered. If you move to a new city for work, you should also factor in any relocation expenses for moving and travel.
Keep your emergency funds in a high-yield savings account to increase the interest you earn on your balance.
2. Create a Budget
An accurate budget is one of the best ways to identify unnecessary expenses. Simply follow these steps:
- Determine your net income: Your net income is whatever you earn every month, minus deductions for tax or other employer-provided programs.
- Track your spending: Once you know how much money you have, you must find out where it goes. Start by listing your fixed expenses, like rent, utilities or car payments. Then move on to your variable expenses — the ones that could change every month, like groceries, gas and impulse purchases. Your variable expenses could present opportunities to cut back. Record everything you spend, no matter how insignificant a purchase might seem.
- Create a game plan: Now you can look at what you spend against what you want to spend. Look at your expenses to get an idea of your expenditure over the next few months and compare that to your net income and goals. Set specific and realistic limits for each category.
- Use the 50/30/20 rule: This technique is one way to budget that categorizes your income into three categories. It's simple, allocate 50% of your spending to needs, like food, rent and car payments. Then, set aside 30% for wants, like entertainment and the remaining 20% for savings and debt.
3. Know Where You Stand
Transitioning careers means knowing precisely what resources you have available. Creating a net worth statement is a simple and effective way to see what you have available to fund your transition. You can determine your net worth with one calculation:
Assets - Liabilities = Net Worth
- Assets: Your assets are everything you own, like a home, a car and your 401(k) plan balance. Take a few minutes to gather information on your assets, including the money market mutual funds, bonds, real estate values and personal property.
- Liabilities: Your liabilities are something you owe, like the unpaid balance on your credit card or a mortgage. Gather information on what you owe, including student loans, charge accounts and loans from family members.
Determine how many assets and liabilities you have, then subtract your total liabilities from your total assets. The remaining number is your net worth.
Many banks have online budgeting tools that automatically calculate your net worth based on the information you provide to them. It's a great way to get a better understanding of your starting point.
4. Shift Your Mindset
Making your road to a career change smooth and easy to navigate is much easier if you adopt a long-term mindset. You may need to make sacrifices in the present to thrive in the future. Apply the same enthusiasm to your finances as when you were searching for your new job. Living within your means can be challenging, especially if you’re accustomed to a certain income.
Think about cutting back on unnecessary expenses, like trading in your gym membership for a good pair of running shoes or making your morning coffee at home instead of grabbing one from a restaurant. Start small, and you’ll be surprised how easy it becomes with practice.
5. Set Some Goals
A job transition is the perfect time to identify or assess your financial goals and decide where to put your money and for how long. It’s often helpful to break your goals down into three sections:
- Short-term goals: Focus on the next 12 months. Consider how to pay down your credit cards and build your savings. When transitioning jobs, your primary goal is often to avoid adding to any existing debt. Remember, it’s not a matter of “if” you get your dream job but “when.”
- Mid-term goals: After the first 12 months, you can think more seriously about the future. By then, your income will have stabilized. Some common mid-term goals include paying off student loans, buying a first home or expanding your family.
- Long-term goals: Ask yourself questions about the future, like when you want to retire and how you want to spend that time. How can you manage your finances now so that these goals can become a reality?
Once you have goals, you can take steps to achieve them. Consider your salary — or expected — retirement contributions, lifestyle expenses and tax. Put some financial projections on a spreadsheet so that you can make informed decisions about your career and your future.
6. Prepare for Your Next Transition
If there’s one thing a job transition can teach you, it’s to be prepared for the next one. Once you’re settled in your new job, take the following action to handle the unexpected:
- Address your debt: You may have used your savings or taken out a loan during your transition, which is normal. Now you’re established in your new job, take steps to manage your debt. Pay off your high-interest credit cards first and then move on to any outstanding loans or home equity lines of credit.
- Replenish your emergency fund: A good goal is to have between 3-6 months of living expenses in your emergency fund. Save this money in a cash account, such as a money market
- Maintain good spending habits: When you’re happy and settled in your new job, it’s tempting to fall back into old spending habits. Resisting the urge is essential, so remember your financial goals and stay motivated.
- Look to the future: Stay aware of new job opportunities in your chosen career, and remember, the workplace is constantly changing. Make an effort to polish your existing skills and learn new ones, putting yourself in a strong position should you need to change jobs or careers in the future.
- Take care of yourself: A job transition can be emotionally draining for you and your loved ones. Ensure you treat yourself well, mentally and physically.
Navigate Your Job Transition With First Commonwealth Bank
At First Commonwealth Bank, we can help you build your financial confidence and save money so you can handle your career transition with ease. We’re passionate about educating people about their finances and giving them solutions to their financial challenges. Find a branch near you and pay us a visit to start planning for your financial future.
You can contact us to learn how we can help you navigate your job transition or any other major life event.