Money milestones: How to manage your money at a new job

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Money milestones: How to manage your money at a new job

Whether you’re brand new to the workforce or you’re a seasoned veteran with decades of experience, starting a job with a new employer is a big adjustment. One of your biggest concerns should be how to manage your changing finances and respond to an adjusted income, new benefits and different financial goals.

In essence, you need to hit refresh on your money. Here’s how to manage your money when you get a job.

Negotiate your job offer

Whenever you receive a job offer, try to verify if it’s a good one before you accept. Compare the offer with your knowledge of the industry. Do research on salaries for comparable positions in your area. If the offer falls short, you may want to negotiate for a better salary.

Your ability to negotiate a better offer is highly variable and depends on the employer, the position itself and what your skills are. Avoid overplaying or underplaying your hand.

The company offering you a job is motivated to get you to start, so the advantage is typically on your side. Lower level jobs with a lot of competition may not have as much wiggle room, so pick your battles wisely.

Money isn’t the only thing you can negotiate, either — you could also ask for extra paid time off, a better job title and other perks.

Decide how much to withhold from your paycheck for taxes

First-day paperwork will include a W-4 form, which tells your employer how much money to withhold from your paycheck for federal taxes. Withhold too much and your paychecks will be smaller (you’ll get your money back in the form of a tax refund, but you’ll have to wait). Withhold too little and you’ll owe the IRS at tax time.

Don’t assume you should keep your withholding the same as you did at your last job. A change in income could put you in a different tax bracket, which can affect how much income is withheld Other factors, such as your dependents and tax credits, may also come into play. If you need some help, refer to the IRS withholding calculator.

Choose your health benefits

There are a few reasons not to sign up for health insurance through your employer — either you’re already on a spouse’s plan or have your own private plan.

But in many cases, your employer’s health plan is the most affordable option because it offers negotiated group rates and your employer will subsidize some of the cost. Under the Affordable Care Act, an employer must offer a plan that costs 9.56% or less than an employee’s household income, or be subject to penalties.

Get familiar with the different plan options:

  • Health maintenance organizations have strict network guidelines and require referrals for specialists
  • Exclusive provider organizations have strict network guidelines but don’t require referrals
  • Preferred provider organizations let you go out of network and don’t require referrals

Don’t forget to ask about dental, vision and prescription coverage, which may be included in the health insurance plan or offered separately. If you anticipate any medical expenses for the year, you should also consider signing up for a tax-advantaged account:

  • Flexible spending accounts, offered by your employer, let you make financial contributions throughout the year (up to an annual limit) to use for eligible medical expenses tax-free.
  • Health savings accounts must be opened on your own and they’re only available to individuals who participate in a high-deductible health plan. They also let you make financial contributions throughout the year (up to an annual limit) to use for eligible medical expenses tax-free.

Start saving for retirement

Getting a new job means you should be saving for retirement. The sooner you start saving, the better — through the power of compounding interest, the money you save now can grow significantly given time.

One of the most popular employer retirement plans is the 401(k), which lets you make contributions directly from your paycheck to a tax advantaged investment account (depending on your employer, there may be other types of retirement plans as well). Over time, your 401(k) can grow into a sizeable nest egg so you can take distributions in retirement.

Here's how to roll over a 401(k).

If you choose to save for retirement apart from your employer, like with an individual retirement account, getting a new job is still a good time to assess your current contributions and make adjustments based on your income. You may need to increase or decrease your contributions (or open a new IRA to get started).

To maximize your potential future earnings, contribute as much as you can to your retirement accounts. If your employer matches any part of your retirement contributions, you should at least contribute enough to maximize that match — it’s free money, after all.

For 2019, the annual contribution limit for 401(k)s, 403(b)s and most 457 retirement plans is $19,000 (in addition to $6,000 if you’re age 50 or over). For IRAs, the contribution limit is $6,000 (in addition to $1,000 if you’re age 50 or older).

“With finite funds, saving can seem like an unnecessary hindrance as a young, healthy person entering the workforce, but save as much as you can - and save now,” said Aviva Pinto, Director at Bronfman Rothschild, a wealth and financial advisory firm.

Check for other financial perks

Employers may offer other financial benefits, depending on their internal policies and your location, to entice new hires and retain talent. Make sure you understand all of your employer’s benefits, which may include:

  • Dependent care FSAs: These savings accounts let you set aside tax-free funds (up to an annual limit) to pay for eligible dependent care expenses including day care, nursery school, after school programs, nannies and adult daycare centers.
  • Commuter benefit programs: Commuter benefits might include public transportation subsidies, parking subsidies and bicycle benefit programs.
  • Wellness programs: Some employers offer wellness benefits such as subsidized or discounted gym memberships, nutrition programs and even discounted health insurance premiums for healthy individuals who agree to take a risk assessment.
  • Professional development: Your pursuit of professional development can benefit your employer by broadening or sharpening your skill set. Check if your employer pays for conference attendance, seminars, training or other development programs.
  • Tuition assistance: Companies are showing an increasing interest in helping their workers pay for student loans. While it’s typically a small percentage of overall employers, tuition assistance is expected to grow in popularity.

Adjust your budget

If your income has changed, adjust your monthly spending budget for your new financial reality. If you already have a budget for tracking your income and expenses, you will need to alter it to reflect your new salary and spending (don’t forget to account for job-related expenses like commuting costs). If you don’t already have a budget, you can create one using our simple spreadsheet.

If you’re getting a raise, don’t immediately increase your spending and recreation budget — instead, focus on financial goals first, like paying down debt and saving for retirement. Once you’ve taken care of business, you can see what additional funds are available to use.

“Creating a budget is great, but it doesn’t mean much if you don’t continue to monitor your expenses each month. This can help you pinpoint areas in need of improvement as well as locating ways to save more,” said Pinto.

Start or continue an emergency savings fund

Everyone should have an emergency savings fund to cover them in case of home repairs, vehicle breakdowns, medical problems, job loss and other emergencies. A common recommendation is to have at least three to six months’ worth of income saved away.

Even if that seems out of reach, you should start saving something. Try to put aside a little extra each month in a separate savings account you won’t touch unless it’s an emergency.

“Automatically direct a portion of your paycheck to your separate savings account. Studies show that if you don’t see the money it makes it a lot easier to save,” said Pinto.

If you’re already contributing to an emergency fund, keep it up and adjust your monthly contribution based on your new income. Remember, you can probably earn better interest rates than your standard savings accounts in money market accounts, high yield savings accounts or CDs.

Update your life insurance policy

Your life insurance policy should help your family care for themselves in the event of your death and subsequent loss of income. While the amount of money you need depends on many factors — including how much debt you hold, how many dependents you have and the cost of your kids’ college educations — a good rule of thumb is 10-12 times your income in coverage.

Check if your employer offers any life insurance benefits first. While they probably won’t provide the total coverage you need, they may cover some portion of your salary as a death benefit to your family. After that, you’ll want to sign up for a policy or adjust your existing policy to make sure your family is taken care of if you die.

Policygenius provides an easy way to compare and buy life insurance.

Check your first paycheck

Mistakes happen, so pay close attention to your first paycheck to ensure you’re earning what you should. Your first paycheck also tells you how much you can expect to take home after taxes, Social Security and other deductions, so make sure you’re plugging your actual take-home pay into your budget.

Recommended reading

Here’s how to negotiate a job offer.

Here’s how to navigate your employer’s health insurance options.

Create a budget using our handy spreadsheet.

Here’s how much life insurance you need.

Image: Nastia Kobzarenko