Job hopping has become the ‘New Normal’ for Millennials today. However, switching jobs is also a very crucial time in one’s life, which comes with a lot of excitement combined with many changes that we have to adapt to. Below are a few factors that we should keep in mind with respect to our finances at this stage:
1. Understand your new compensation package
Most often, we just tend to focus primarily on the change in the in-hand salary that we get on a new job. However, it is very important to first understand the overall compensation structure. There are various aspects to understand in this case, such as what the basic salary will be, what the allowances and perks the company is offering and the tax implications of the same, the statutory deductions allowed, and finally the impact on your tax bracket and your in-hand salary.
“In some cases, while the gross income may seem to be higher than your previous job, the salary structure may be designed in a way that you may land up paying higher taxes, and hence the difference in net income may not be as significant as you imagined. Further, there are also additional benefits that companies offer such as travelling expenses, medical insurance for you and your family, life insurance etc. It is also important to consider these factors, as there may be additional cash outflows that may crop up to take care of such expenses that were earlier been taken care of by your previous company,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HappynessFactory.in.
2. Adjust your daily expense budget
With a change in job, it is very important to review your lifestyle expenses and adjust your daily expense budget accordingly. For instance, if you are opting for a lower-paying job to join an exciting new start-up or follow your passion, you will need to prudently plan your expense budget. If you are going to get a higher compensation, then also you must plan your expenses ahead, to avoid splurging on unnecessary things. Therefore, it is a good idea to relook at your savings and expense budget considering the change in income, post a job change.
3. Review your Financial Goals
Along with managing your expense budget, it is also important to review your savings budget and the impact of the same on your financial goals. “Based on your change in income, your capacity to save and invest will also change. You will need to increase/reduce your ongoing investments towards your goals. In fact, there could be situation where you revise your financial goals, based on the change in financial situation. Hence, it is very important to review your goals, and adjust your savings towards the same along with your financial advisor,” informs Pandit.
For example, if your salary has increased, you can review you goals and allocate the surplus funds to those goals which are falling short of funds. Similarly, if your income has come down, you will need to prioritize your existing goals in a way that they can be met from your new reduced cashflows. Once, your goals are in line with your cashflows, they can be achieved more smoothly.
4. Transfer of your EPF account
Contributions made towards Provident Fund by the employer and employee are done with a long-term horizon, and meant to fund a part of your retirement goal. In case of change of job, it is always advisable to transfer your EPF account balance, rather than withdrawing the accumulated corpus. “The power of compounding will work in your favour only when the investments are intact to grow for a longer term, rather than withdrawing it every time you change your job. With disciplined contributions, one can accumulate substantial corpus, that can be allocated to retirement goal,” says Pandit.
EPF transfer is more systematic now, as with UAN (Universal Account Number) it has become easier to link or transfer your old accounts online.
5. Reassess your insurance need
While it is very important to have an insurance cover (medical and life) bought on your own, over and above the cover offered by your employer, you should also review your insurance needs when you change your job. You might consider scaling up your insurance covers, if your new employer does not offer insurance benefits which were given by your previous employer.