Hey everyone, it’s Finance Fridays again. Today is going to be a kind of stream of consciousness post about “Changing Jobs and Losing Money”.
First of all, let me be clear that I’m not talking about me. I like my job and I don’t see myself leaving it until I retire from medicine completely.
However, as I’ve talked about before in Choosing Your First Job, The Temporary First Job, and Looking for a New Job, doctors usually change jobs. Their first one isn’t usually their last and I would guess most doctors change jobs probably at least 2 or 3 times in their career. I’ve been pretty lucky in that I’ve only changed jobs once and don’t plan to ever change again. However, I have colleagues who are my age who are already on their 4th or 5th jobs.
I’ve kind of mentioned it before, but I think it’s a good idea to talk about the things that occur when you change jobs.
Obviously a change based on necessity is not ideal. By this I mean where you lose your job unexpectedly, like what happened to me back in 2014. Luckily, I at least had some time to dust off my CV and try to find a new job. Additionally, we were lucky in that we were renting a small apartment and hadn’t bought a house. However, there were things I wished I had done differently financially.
Since I wasn’t able to contribute to the 401k my first half year as an attending, there wasn’t much I needed to do financially other than to save money. However, my wife could have contributed to her 401k but for some reason I opted for us not to do it because we would have been strapped for cash for that half year. Of course, I consider this part of “The Biggest Mistake of Your Life.“
However, I think I did a good job getting our finances on track once we moved to Hawaii, planning to maximize our 401k/403b/457 contributions in our first half year in Hawaii.
However, things aren’t always that easy…
Things get a little more difficult if you’re starting a different job after already having contributed to another job. If you were aware that you would be leaving, you can try to figure out a plan.
For example, if your current job has a better match, maybe you want to try to maximize your contribution as much as possible before switching jobs. However, if the new job has a better match, then perhaps you hold off on your 401k contribution until you start your new job.
That’s actually a pretty simple change, but you need to figure out how much to contribute to maximize your employer match. Sometimes this is simple and human resources can help, other times you’re on your own to do a little math and confirm how many pay periods there are in the year.
What if things are a little more complex?
Let’s say instead your current job is a partnership where you had been maximizing our employee/employer contributions to the maximum of $56k. However, now you’re planning to move over to a new job which has a simple 401k and employer match.
What is the best way to optimize your contributions? Well, ideally, if you can ask your current job to contribute for you (as employer) instead of it being a employee contribution, then you can still maximize your own employee contribution at your new job.
Or, if you want to make things a little easier, maybe you make it so your start date at your new job is in January. This allows for a “clean break” between the old job and the new job. You would do your normal employee/employer contribution at your old job until December 31st. Then start your new job in January with your contribution spread out over the year to maximize the map.
So what’s the take home message?
The take home message is that when you change jobs you have a lot of things to deal with, like potentially moving amongst other things. Maybe you need to sell and buy a new house. There are a lot of things to do.
However, don’t forget about your finances. If possible, structure your change in jobs around what is ideal for you to maximize your contributions and employer match. You don’t want to leave money on the table.
Additionally, don’t push off the 401k paperwork on the new job because you might miss out on some of the employer match if you don’t take care of it early enough.
I’m sure there are many instances where doctors were unable to maximize their contributions or their employee matches. Now imagine if you change jobs 4 or 5 times over the course of your career. Each time you change jobs you lose a little bit of money. Those little losses add up… and don’t forget about all that compound interest too!
Changing jobs can lose you money.
Don’t leave money on the table.
If possible try to optimize your job change around what is best for you.
Those little losses can add up and compound interest can hurt you significantly.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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