Are you starting a new job? While you may be focused on the work aspects of your new position, it’s important to recognize that this also marks a significant financial transition beyond just a salary change. Mastering this transition and ensuring you don’t leave any money on the table can greatly impact your finances and wealth.
At Wave Tax, we recommend these essential steps to take at each stage of your new professional journey.
✅ Step 1: During the First Week
You will be learning new names, processes, and likely new technologies. Here are some key initial decisions you may need to make:
- Withholdings. The number of allowances you claim affects how much tax your employer withholds from each paycheck. Claiming too many allowances may result in insufficient withholding, while claiming too few could lead to excessive withholding.
- Health Insurance. Depending on how often you visit the doctor and the types of healthcare providers you see, you may benefit from a plan with either a higher or lower deductible. If you’re unsure, ask HR for more information about the different policies available and seek advice if needed.
- 401(k) Contributions. If your new employer offers a matching contribution, aim to contribute at least enough to receive the full match. If possible, try to save 15% of your salary for retirement, factoring in the employer match.
- 401(k) Investments. Contributing is just part of the equation. You will also want to invest that money so it can grow over time. Your 401(k) will likely provide a selection of investment funds for you to choose from.
- Alternative benefits selection. Depending on the offerings of your company, you may also have access to life insurance, disability insurance, a flexible spending account (FSA), and other options.
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✅ Step 2: During the First Month
Evaluate whether it would be beneficial to enroll in any additional perks, such as commuting assistance, gym benefits, childcare support, tuition reimbursement for continuing education, or even student loan assistance. This may also be an opportune time to finalize any loose ends from your previous job. In addition to tracking your old 401(k) plan, you should also consider what to do with any remaining funds in a previous HSA or accrued balances from a stock compensation plan. Take some time to organize or consolidate accounts if necessary to ensure you retain what is rightfully yours.
📌 A note: Keep an eye on your old 401(k) plan. You may have already made a plan for your previous 401(k) or another workplace retirement plan before leaving your last job. If not, now is the time to do so.
🔎 Here are the basic options:
- Leave it in your former employer’s plan. Many companies (though not all) allow you to keep your money in their plan even after you leave.
- Transfer it to an IRA account. You can move the funds from your old 401(k) to an IRA with the brokerage firm of your choice.
- Roll it over into your new employer’s 401(k) plan. Some companies permit you to reinvest the funds from your old plan into their own. If you are self-employed, you may also have the option to reinvest the money into your own small business retirement plan, such as a SEP IRA or a solo 401(k).
- Withdraw. If you take the money out, you will typically have to pay taxes, along with a penalty if you are under 59 and a half. Therefore, you should only consider this option if you have an urgent need and no other alternatives.
Starting a new job may also require you to adjust various seemingly unrelated aspects of your family’s finances. For instance, while you might have access to life insurance through your new employer, it may not offer adequate coverage, especially if you are the primary breadwinner. Take some time to crunch the numbers and evaluate whether you need to purchase additional insurance independently.
✅ Step 3: During the First 3 to 4 Months
You may have received a significant salary increase upon starting your new job, or you might have transitioned to a position that offers greater meaning and satisfaction, albeit with a lower salary.
In any case, once you have made your decisions regarding benefits, you should begin to estimate your new net salary and the flexibility it provides for managing household expenses. If your earnings are lower than before, you may need to adjust your budget.
Conversely, if you earn more, aim to maintain your current spending levels and consider allocating the additional funds towards your goals, such as paying off debts or investing.
✅ Step 4: During (and After) the First Year
Over time, the initial instability of your new job will transition into a smoother experience with a more predictable pace and schedule. When this happens, assess your work-life balance, your overall mood, and whether you are spending enough time on activities you enjoy at work.
As months turn into years and you evolve from a newcomer to a trusted veteran, you may be presented with opportunities for promotions and salary increases. If that is the case, think about increasing your retirement contributions to stay on track with the goal of a total contribution rate of 15%.
If possible, try to keep your expenses steady and direct any extra income towards your financial objectives and your family’s future, whether that involves retirement, college, or other financial aspirations.
📍Remember, at Wave Tax we provide the tax advice you may need.
📩 Contact us at info@wavetax.us