One of the most crucial and overlooked aspects of a career change is how to smartly prepare our finances. Samantha Taube, from our partner CommonBond, shares her advice on a graceful transition.

Taking the leap and leaving a job can be scary. In the midst of emotion and excitement, we often ignore simple but important financial decisions. As someone who has made several career transitions over the last three years (from working, to business school, and back to a full-time role) here are five things I have found to be important when making a change.

1. DON’T LEAVE MONEY BEHIND

In the whirlwind of leaving a job, it’s easy to forget money you may have invested with your employer.

  • Transfer your 401K. If you have been paying into a company-sponsored 401K, there are  likely retirement savings you don’t want to leave behind.
    Not sure what to do with your 401K? There are plenty of articles (like this one by US News & World Report) out there to help you decide where and how to move your money.
  • Take Advantage of any Payout Benefits. If your employer offers a set number of vacation days, they may also have a policy that allows you to be paid out for any unused days when you leave. Check with your employer’s HR department to understand your full vacation policy and make sure you are being paid for any time you didn’t use.
  • Purchase Your Stock Options. If you work for a start-up, you may have been granted stock options as part of your employment contract. When you leave, you typically have a set amount of time to exercise your options or purchase stock.

While it may be tempting to purchase all of your shares, it can also be risky. This great article from Wealthfront outlines the key things to consider when looking to exercise your options.

2. KNOW YOUR HEALTH INSURANCE OPTIONS

When you leave your employer, how will you get health insurance?

  • Under the Affordable Care Act, if your parents’ plan covers children, they can add or keep you on their health care plan until you turn 26.
  • If you were enrolled in your employer’s health plan, you may be eligible for COBRA. COBRA is the continuation of your existing health insurance coverage for up to 36 months if you qualify.
  • Your significant other may also be able to add you to their health insurance plan. Note: If you are not married, you may be required to file for domestic partnership before being eligible.

3. KNOW YOUR EXPENSES, AND BE FLEXIBLE

Before leaving steady income or even accepting a new job offer, have a full understanding of your expenses every month. Use 3-4 months of expenses to give you a clear picture. This will help you adjust or cut back on spending when the transition happens. A simple tool like Mint, can help you gain a clear picture of your financial habits.

4. HAVE AN EMERGENCY FUND

The job search can take longer than you think. According to the Bureau of Labor Statistics, the job search usually takes 10.8 weeks with 58% of job seekers finding a job in less than 14 weeks. Make sure you have funds set aside that you can use if you don’t land a job right away. LearnVest recommends an “emergency fund” of at least six months of your net pay.

5. FIND WAYS TO BUILD YOUR RESUME

While not directly related to your financials, if you don’t have your next job lined up, consider taking on a consulting or pro-bono project. The work will help to build your skill-set and resume between jobs. Additional projects and passions can improve your qualifications and potentially even your future salary.

A final note…

Financial decisions can be tricky and personal. Take the time to chat with family and friends to get their suggestions and incorporate the ones that make the most sense for you.

Here are a few more resources to help plan and secure finances during your next job transition:

  1. CommonBond’s Excel Tool For Managing Your Student Loan Payments
  2. LearnVest’s “This or That” Calculator
  3. CommonBond’s Guide to Saving for Retirement

 

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