The complete financial guide to starting a new job

Stepping into a new job? Congratulations! Take some time to consider the financial choices that come along with this change, so you can stay in control of your money.

The psychology of starting a new job

Changing jobs is an exciting time that comes with a lot of decisions, a bit of stress, and strong emotions. This is normal and healthy, so take a deep breath and give yourself some time to make thoughtful choices. During periods in which we make more decisions, experience greater levels of emotions or stress, studies have shown that we make poor choices, especially when it comes to money – something to keep in mind in your first few weeks on the job.

And remember, a new job is an opportunity to start fresh. If there are some old habits you want to break or new ones you want to develop, now’s the time. But don’t try and overhaul everything at once. Small, incremental changes are the key to success.

Income and tax withholdings

A new salary, or salary structure, can dramatically change how you manage your money throughout the year and your tax bill at the end of the year. But since taxes can be daunting, many people simply cross their fingers and hope they’re not hit too hard. Consider these three points to avoid unpleasant surprises.

1. 1. Budgeting For A New Salary - Is your base salary changing, relative to your bonus, in your new role? Or are you stepping into a role with a bonus for the first time? The structure of your annual salary will determine how you manage your budget to account for the ebbs and flows. If your income is going up, commit to saving for your future first and then spending what is left. It’s a great hack to avoid lifestyle creep.
   2. Stock Compensation - Some employers offer stock awards as part of their compensation packages. Make sure you understand what type of stock award you’re being offered, and when you will receive the shares (called the vesting schedule). This will help you determine how your stock compensation impacts your taxes, and how and when you can plan to sell the stock.
   3. Tax Withholdings - Your taxes are based on both how much, and how you’re paid. In other words, your employer may withhold taxes differently for bonuses, stock options, and your base income. When you make elections on a W-4 form as a new employee, you’ll make some educated guesses about your income. This is fine, but remember that tax planning is an ongoing process. Revisit your estimates every six months or so to avoid overpaying, or underpaying and receiving a major tax bill.

Take a close look at benefits

If possible, take time to review your benefit choices carefully before your start date. You may only have 30 to 60 days to make elections, so proactive planning can reduce the stress of your first few weeks on the job.

Health Insurance & Savings Plans - You’ll likely be offered a traditional health plan with a flexible spending account (FSA) or a high deductible plan with a health savings account (HSA). Which is right for you? If you have a family or major medical needs, a traditional plan is probably best (but remember to fund your FSA!) If you’re single and healthy, an HSA may work, since you may visit the doctor less frequently. Finally, if you’re married, remember that a new job may be a “qualifying event” that allows you to change your spouse’s coverage if needed.

Insurance - Disability insurance – which replaces your wages if you’re sick or injured – is available for the short or long term. Short-term is great for those who are still building an emergency fund, but long-term disability is a must-have safety net for everyone. When it comes to life insurance, it’s best to find it outside of your workplace, since you’ll likely get more coverage for less. If you do choose your employer’s life insurance, there’s typically a flat amount offered, with an option to pay for more coverage if you choose.

401(k) - Determine when you are eligible to contribute to your 401(k) – it’s not always day one. You want to enroll and start contributing ASAP. Look into how much your company matches, your investment options, and whether or not they offer a Roth option. How much you contribute and the type you choose – traditional versus Roth – depends on your situation. Maxing your plan is a good goal, but, if you aren’t ready, always contribute enough to get the full match. Don’t forget any contributions you made at your last job during the year as they count towards the maximum amount you can contribute.

Ancillary benefits - The smaller benefits your employer offers can add up! Be sure you’re familiar with everything available – from free legal help to gym memberships and public transit reimbursements. Every little bit can help your bottom line. And don’t forget about benefits for tuition reimbursement, since furthering your education and professional development is always a great investment.

Avoid the benefits graveyard

Don’t forget to tie up loose ends! If you have a 401k or health savings account (HSA) from your old job, make sure that money comes with you. Move any retirement savings to an IRA or your new company’s 401(k) – often called a rollover. Likewise, transfer your health savings into another account, or consolidate it with one offered by your new employer. If you have vested stock and unexercised options with your prior firm, you need to take action ASAP. While options typically expire after 10 years, that expiration date accelerates to only a few months upon your departure.

Planning doesn’t end once you’ve made these decisions. You need to periodically evaluate your situation and to make adjustments as you reach life milestones – marriage, family and kids, new home. And when your next open enrollment period rolls around, spend time reviewing your elections. Just because they were right today doesn’t make them right tomorrow.