Back in my parents’ day, people typically held one job their whole lives. They studied or apprenticed for a profession and stayed on that same career path from their youth to their old age. Job security was paramount.
But times have changed. The disdain for job-hopping seems to have dissipated. In fact, the new normal, according to some studies, shows that millennials change jobs about four times by the time they are 30, double that of the previous generation. Perhaps this reflects an inherent restlessness or perhaps millennials simply are more eager to rise in rank and pay. Most regular employees’ annual raises these days average between 1 percent and 3 percent, whereas job switches in a healthy economy may result in salary jumps of as much as 10 percent.
Some experts now advise changing jobs every three years indefinitely — to remain fresh and energized, to stay current in an industry, to sharpen your skills and experience and to expand your network of contacts.
Regardless of your reason for changing jobs, doing so will have a significant impact on your finances and there are many steps to consider along the way.
If you are moving locations, you may be making a lifestyle change as well as a job change. How will your commute be altered? Will you need a new wardrobe? Will you be close to amenities, lunchtime options, shopping and other conveniences? Consider the cost of living and what it means for your bank balance. A company in a major metropolitan city where the cost of living is higher may pay more than one where the cost of living is lower. Where will you live? Many millennials postpone purchasing a home since they tend to change jobs more often. Will you rent or buy?
Once you negotiate your new salary, you likely will have to draw up a new monthly budget. Will you be able to increase the amount you invest monthly? Two things to keep in mind: first, will you be eligible for overtime pay? If so, a slightly lower base salary with regular overtime pay may result in greater overall earnings than a higher base with no overtime pay. Second, will your partner or significant other be looking for work in the new location as well? If there is a lag in obtaining the second household income, make sure your budget reflects the difference.
Many jobs in today’s market may be done remotely; perhaps your new pursuit will allow you to work from home. A home office presents a host of financial considerations, including potential tax deductions, for which you may want to consult your accountant. In the meantime, you might ask if your employer will help defray the cost of office furniture, equipment or supplies.
Every time you change jobs, you must consider what to do with your 401(k). Most financial advisers will recommend that you do not cash out the plan, as early withdrawals (before age 55) will result in taxes and penalties. Instead, choose one of three options: leave the money where it is, roll it over into some form of a personalized retirement account or transfer it to your new employer’s 401(k) plan. Carefully consider the ramifications of each option on your broader financial situation and needs.
As with any change in financial circumstances, it is important to reevaluate your long-term financial goals. Will it now be possible to increase the amount you are setting aside for retirement? For a new house? For a child’s college education? If finances will allow, it always is a good time to increase the amount you contribute on a regular basis to your investment portfolio.
Job-hopping may be accepted as the new normal, recognized by the younger generation as an approach to life that presents a host of positive aspects with few drawbacks. To make the most of these benefits, make sure to stay on top of all the associated financial repercussions, too.
Lisa Santo is a financial adviser with the Global Wealth Management Division of Morgan Stanley in Manhattan and a resident of Sleepy Hollow. She can be reached at 212-883-7707.