Thinking About a Job Change? Be Sure You’re Financially Prepared

The past few years have prompted most of us to rethink our priorities. In particular, many Americans are deciding what they want from a job, including the flexibility to work remotely and more opportunities to enjoy life outside of work with family and friends. When it feels like those opportunities are lacking in your current gig, it may be tempting to see what else is out there.

In early 2022, 2.5 percent of U.S. workers, or roughly 4 million people, changed jobs per month on average,¹ as part of a wave that’s being dubbed "The Great Resignation."

Switching employers or career paths, or even starting your own business, could be an avenue for defining your ideal work situation—but it does come with some uncertainty. One of the biggest questions for those looking to take the leap is: Are you financially prepared to do so? Here are five more pointed questions to help you assess whether you’re ready to make moves.

1. Do You Have an Emergency Fund?

According to the Pew Research Center, approximately two-thirds of U.S. workers who left their job (by choice or not) in early 2022 were not with a new employer the following month.¹ While the speed of finding new employment may vary based on role and industry, and you might be able to maintain your job while looking for the next one, you should still be prepared to take care of your living expenses for an extended period if the need arises.

A recent study found that 32 percent of American adults do not have non-retirement savings sufficient to cover one month of living expenses,² and less than a quarter have liquid savings equal to more than three months of their family income.³ Keeping three to six months’ worth of essential expenses in a rainy-day fund can help you weather periods of economic or personal instability. 

2. Do You Have a Budget in Place?

One of the silver linings of recent events is that more people are paying attention to their finances. According to a 2022 Debt.com survey, 85 percent of Americans say they have a budget, up from 68 percent three years ago.⁴ A budget helps you track your inflows and outflows so you can manage current obligations while also planning for tomorrow. At a high level, it reflects your income and the life it enables.

If you’re among the 15 percent of Americans without a budget in place, the 50/30/20 Rule may offer a simple framework to help you get started: Try allocating 50 percent of your available funds to needs, 30 percent to wants and 20 percent to savings and investments. If you do have a budget, remember that it should be designed for where you are today, not where you were years ago. In either case, you might try drafting a second budget based on the positions you’re seeking, including potential changes in pay and benefits, as well as job-related expenses like commuting, clothing, technology and perhaps childcare. See how the two stack up and whether a move allows you to maintain or improve your lifestyle.

3. Do You Have Your Debt Under Control?

When it comes to debt, what you don’t know can hurt you. Of Americans with credit card debt, 40 percent don’t know the interest rate they’re paying on their credit cards,⁵ and more than one-third of homeowners don’t know their mortgage rate.⁶ Making endless interest payments can eat away at your finances and prevent you from progressing towards your goals. Conversely, knowing what types of debt you hold and the interest rates on each can help you make a plan for paying it down.

Lowering your debt burden can help you withstand any financial shocks that may come from changing your employment. There are several steps you can take, from regularly reviewing your statement to requesting your free annual credit report to exploring options for consolidation or refinancing.

4. Have You Considered the Impact to Your Retirement Savings?

When contemplating a job switch, you may want to think about the longer-term financial effects, especially when it comes to retirement. Does the potential new employer’s 401(k) plan offer the same features and benefits? If you leave too soon, could you be sacrificing a not-yet-vested employer match? Do you have the option to save for health care expenses now and in retirement via a Health Savings Account (HSA) at either workplace?

You generally have four potential options for your qualified retirement plans from former employers. You can:

• Leave your assets in your former employer’s plan, if permitted;

 

• Roll over your retirement savings into your new employer’s qualified plan, if one is available and if rollovers are permitted;

 

• Roll over the retirement savings into an individual retirement account (IRA);

 

• Cash out and take a lump sum distribution from the plan. This would be subject to mandatory 20 percent federal tax withholding as well as potential income taxes and a 10 percent penalty tax.

 

If you’re not sure which avenue might make the most sense for your situation, it can be a good idea to consult with a Financial Advisor and your legal and tax advisor.

5. Do You Remember What Joni Mitchell Said?

When you’re dissatisfied with your current situation, it’s easy to assume the grass is greener on the other side. But as Joni Mitchell famously sang, "You don't know what you’ve got ‘til it’s gone." Before you pursue your next opportunity, conduct a full assessment of what you might be leaving behind, especially financially.

Are you exchanging the chance to work remotely for thousands of dollars in employer contributions to your 401(k) or HSA? What about the cost of health care? Have you factored in the value of other voluntary benefits like credit counseling, financial planning and mental health coverage? Before you put in your two weeks’ notice, make sure you have a complete understanding of the trade-offs you could be making. You may also be able to influence your current organization’s offerings; many employers have adapted their financial health benefits in response to the pandemic, largely because of employee demand.⁷

The Bottom Line

Pursuing a new opportunity may help you get more of what you want out of work. But before you do, make sure you’re prepared financially: build an emergency fund, make a budget, get a handle on your debt, evaluate the impact to your retirement savings and fully consider the potential trade-offs. If you need help navigating the financial aspects of a job change, especially in light of your overall goals, it may be helpful to speak with a financial professional.

¹ Pew Research Center, "Majority of U.S. Workers Changing Jobs Are Seeing Real Wage Gains," July 2022

² TIAA Institute and Global Financial Literacy Excellence Center, “How financial literacy varies among U.S. adults,” April 2022

³ EBRI Issue Brief, "Emergency Savings: What Do Workers Have Available in Liquid Savings? How Long Can They Afford a Loss of Income?" August 2021

⁴ Debt.com, “Americans Are Budgeting More Than Ever,” April 2022

⁵ Bankrate.com, “Poll: Consumers say cash back is king,” January 2022

⁶ Bankrate.com, "Survey finds 74% of homeowners haven’t refinanced despite historically low mortgage rates," October 2021

⁷ SHRM, “Priorities Shift as Pandemic Recedes, SHRM 2022 Employee Benefits Survey Shows,” June 2022