Changing Jobs How To Budget For A Smooth Transition

Changing Jobs How To Budget For A Smooth Transition Changing Jobs? How To Budget For A Smooth Transition Taking a  new job is an exciting time. Its also a major life event that can cause stressfinancial and otherwise. The short-term stress of  changing jobs usually pays off in the long run. External hires have the potential to make 18 to 20 percent more than  employees promoted from within, according to a  study by the Wharton School. If you can combine better pay with a shorter commute or better benefits, saying yes to a new job  could be a no-brainer. Budgeting around your  career transition can prevent  your new gig from creating a financial setback. Before you decide when youre going to quit your old job and start your new one, crunch a few numbers first. No one wants to get stuck in a bind with a paycheck nowhere in sight. (Or in my case, nearly stuck in Puerto Rico with only a few dollars to spare.) Heres how to create a transitional spending plan when youre going to be changing jobsor in-between paychecks. Figure out your old and new pay schedules Every employer has slightly different payroll policies. And they can  get complicated! You may  have been  paid monthly, twice monthly, weekly or bi-weekly.  In addition, some employers pay ahead of time, while others pay after the work was put in. Confusing? It can be. Here are some examples: Employee A wants to quit his job. He receives his paycheck for time worked January 1â€"January 15 on January 31. Employee B, on the other hand, is paid for that same pay period on January 15. Employee C gets paid before she puts the time in. She receives her paycheck on January 1. In these three scenarios, Employee A can expect to still be paid nearly two weeks after his last day of work. Employee B will likely be paid on or close to his last day, and Employee C will receive her last paycheck before she finishes work! For someone taking time off in between jobs, Employee A is in the most favorable position. Plan for your last and  first  paychecks You could find yourself in a tricky situation if you don’t consider when you will receive your first paycheck at your new job.   Even  if Employee C isnt taking time off, if her new employer  doesnt pay in advance,  she could go a month or more without a paycheck! Again, the cadence possibilities vary, so be sure to ask when finalizing the deal with your new employer. Some employers may issue paychecks on your first day, while others lump it in with your second paycheck. And ifve gone from a biweekly pay cycle to a monthly pay schedule, you’re going to have to really stretch your dollar. You could, again, need to go more than a month without a paycheck. If that’s the case, make sure you have funds set on reserve. And if you need to dip into savings, hold yourself responsible and reimburse your savings account when you receive that first paycheck. Look at when your  bills are due If youre good at  maintaining  a budget, you probably know what your average monthly expenses are. Rent or mortgage, utility bills and other monthly billsthese dues don’t stop just because you’re in the middle of changing jobs. It could be helpful for some to pay these bills ahead of time, though this isn’t always possible. My landlord, for example, won’t accept early rent payments. Some bills can also be put on hold for a month. Call your bank, credit card company or loan company and explain your situation to see what they might be able to do for you. If you’ve paid all your bills on time up to this point, they’re likely to be more lenient. It  never hurts to task! Ask what kind of payout your job will give you Sometimes, you may receive a cash payout for  unused benefits, like vacation days. Some employers lump together sick time and vacation time. Others allocate days for different reasons. In my case, my old employer offered X number of paid vacation and personal days per year, and these did not roll over. They also offered X number of sick days per year. These did roll over every year. When I got my last paycheck, I was paid for vacation and personal days I had accrued for the year but did not use, but the sick days didn’t count for anything. I was only paid for the days that I earned, and not the total number of days. This policy varies per employer. A good reference is the employee handbook and whatever system they use to track days off. You should be able to research these on your own without anyone catching wind of the fact that you may be submitting your notice in the near future. But dont touch your 401(k) If youve contributed  to a 401(k) or other workplace retirement plan, you have a few options when you leave.  Even if you need some extra money to get you through to your next paycheck,  DO NOT cash out your 401(k)! You put money into your retirement plan for a reasonto  be there for you  years down the road, when youll really need it! Cashing out your 401(k) is like robbing  yourself. Worse, the government charges a 10 percent penalty if you cash out your 401(k) before retirement age. With a traditional 401(k) account, you will also owe income taxes on any cash distributions.  If you take an early 401(k) distribution, plan on only getting 70 cents on the dollar. This assumes 20 percent in federal and state income taxes plus the 10 percent penalty. The better move is to rollover your 401(k) into a self-directed IRA.  In many cases, you dont have to do this immediatelyyou can leave your money invested in your old employers 401(k) plan until you decide what to do. But be sure to ask if your employer requires you to move the money by a certain deadline. For example, in some cases 401(k) plans will automatically cash out plans with balances less than $1,000 or $5,000 if you dont provide instructions for rolling the money into another account. Do you need to buy new work  clothes? In some cases, a new job requires new expensestools, uniforms or simply a new wardrobe. Make sure you can afford these added expenses. To get a clearer gauge on what it might cost you, inquire about the dress code. Plan to dress to impress when you’re just starting out. It’s important to make a good first impression. Here are some tips for building your wardrobe on a budget. And remember to save those receipts! You could qualify for a tax deduction  for certain purchases (if theyre required for work, used only for work and your employer doesnt reimburse you). Can  you afford to take time off in between? If you can afford it, consider taking some time off in between jobsthere are a lot of benefits.   Consider how you plan to spend this time off. Are you going to take a trip? Factor in flights, accommodation and other trip expenses. When in doubt, overestimate. You’d much rather have money to spare than run your funds dry. If you’re going to enjoy a staycation, know how much money you have set aside to spend each day, and stick to it. How much time can you afford to take between jobs? In order to figure out how much time to take in between, come up with an estimated amount of money you plan to spend each day. Then add together any funds you have set aside, paychecks and additional income streams. From that figure, subtract known expenses including bills and rent or mortgage, as well as new clothing (if needed). This will give you an idea of how many days you can take off. Remember to include the number of days between starting your new job and when youll receive your first paycheck. Here’s an easier way to think about it: Non-emergency savings  + Last paycheck + Other  income  = Available funds Available funds / Daily expenses = Days of  savings Days of savings   Days between first day of new job and first paycheck = Days you can take off If you plan to travel during your time between jobs, dont forget  to factor airfare, gas or other  travel expenses into your daily expenses. Summary The benefits of changing jobs can take a while to materialize. In the meantime, a bit of planningalong with a willingness  to live frugally for a few weekscan ensure a smooth transition and minimize financial stress. Read more: Best Job Sites: 16 Powerful Resources For New Grads 7 Of The Best Salary Information Websites For Negotiation