Getting a job offer is an exciting time, but you need to consider the full financial impact of a new position.
Before You Accept a New Job
Get over your fear of negotiating. Negotiating an employment offer is probably one of the highest paying activities you’re likely to ever to take part in. Consider that just a few minutes could result in thousands of dollars in additional income for many years to come.When was the last time you made that much money for a couple minutes of work?
- Think of it this way: any increase in your starting salary is likely to compound significantly in the future as it creates an earnings foundation. Future benefits and raises can be tied to it, not to mention other employer job offers in the future are likely to be tied to what you made in your previous position. Don’t allow the barre to be set too low as it can be more difficult to break higher in the future.
- Respectfully asking for more money is a reasonable thing to do. However, you should be prepared to do it the right way, not “just because.” Respectfully means not only how you ask, but the reason you can ask. This means you’ve done your homework on the position and know the value you can bring to the position.
- Don’t forget the benefits. Typically, you’ll be told the general aspects of the company benefits. Don’t be afraid to ask for details. For example, some medical insurance plans are much more expensive than others and some require more of the premium to be paid by the employer. What type of insurance, if any, is offered to cover short term and long term disability ? Life insurance? Are travel expenses an issue for your line of work? If so, does your employer pay up front or are you reimbursed and if so how quickly. What is the leave time policy? Some employer’s match more aggressively on their retirement plans than others. Some employers never match. Believe it or not, some employers still have pensions. It’s worth investigating so you can accurately compare offers. A job with a lower salary might be much better for your situation when you have all the details.
After You Start Your New Job
Make benefit choices wisely. Set up your life, health, and disability insurance and other benefits intelligently for your own unique needs.
For example, the most expensive medical plan might not be the option you want if you’re young and in perfect health and your life insurance needs will vary depending on your family situation.
Make sure you submit your choices in a timely fashion so you don’t get locked out of the enrollment process and confirm that you have provided named beneficiaries for your accounts — such as your 401k and life insurance — in the way you intended.
Does your employer offer a match on the retirement plan? Know how much you need to contribute so you aren’t leaving money on the table. Make sure you select your investment choices carefully and don’t put too much into any one area of the market or company stock. Read up on asset allocation and lazy portfolio strategies here.
Start paying yourself first. Have some of your paycheck automatically deposited into an interest-earning account for an emergency reserve or opportunity fund. Interest rates are so low right now that it may not matter much from a growth perspective, but it makes sense from a behavioral perspective as you are forcing yourself to put money away automatically. It will be easier to start saving now than later because you won’t miss money that you’ve never seen.
Withhold enough and plan for taxes. Are you facing new tax issues? Sometimes a new job means higher pay, new benefits and even company stock options to complicate the mix. You can try to get a rough idea of your tax situation by using an online calculator but be careful. It may be time to sit down with a professional that can help you plan your taxes not just prepare them. It’s not financially smart to get a huge refund every year. On the other hand, it can be pretty challenging both financially and psychologically to have to pay more at tax time. Be confident you’re making wise tax moves to limit your tax exposure and that you’re withholding enough to guarantee you break even or get a small refund each year. Also, make sure your payroll information reflects the W4 information you submit to your employer.
Don’t forget your previous employer benefits. Have loose ends to wrap up? A pension or old 401(k) to consider? It may make sense to either roll the money into an IRA that you can control directly (provided you use low cost, no commission based products) or move it into your new 401(k) depending on the investment options provided. Ask your new human resources department about your options to rollover. Resist the temptation to withdraw the money as the tax penalties are significant. Furthermore, tread carefully before going with a financial advisor’s recommendation unless you understand how they are compensated and the costs associated with the investment recommendation they are making, especially if they are suggesting an annuity or A, B or C share class mutual funds. You can access no commission, no transaction fee mutual funds and ETFs at many institutions that support investors in setting up their own accounts without middleman commissions. Do your homework on this area as it can save you a lot of money over time.
Keep your lifestyle in check. If your pay increases, that doesn’t mean you have to buy a more expensive house or car. Getting a raise is a great opportunity to save a lot of money or aggressively pay down your debt. If you can maintain your spending level for even one year, you can save a lot of money. If you do increase your lifestyle, then be sure to bank at least part of it. Think of a way you can celebrate your new job without going overboard and creating guilt and fear after you celebrate. Perhaps set up a savings account to fund an activity you’ve wanted to do and then celebrate after you’ve been at your new job for six months. Taking this perspective promotes self control, setting you up to achieve life goals that are really important to you, not just instant gratification.
Being financially healthy is the result of making smart decisions consistently. A job opportunity is a time for celebration. Just ensure you’re making positive financial moves to take your best advantage of this occasion.