AAR20 - New Job? How to Handle Finances During a Job Change

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1:47Andrew Sather:good morning everyone and welcome back to at any rate my name is evan ray and we are here as always to help you make sustainable financial changes without breaking a single sweat and this morning i've got andrew satyr back with us again today to discuss how to handle finances during a job move. Good morning, Andrew. Good morning. If you give me two sweats today, I'm going to be so pissed. Yeah, we really hope we don't. I'll delete one of these bullet points so that we're completely safe from breaking a single sweat. So yeah, today we're going to be discussing how to handle your finances during a job move.

2:19Andrew Sather:And what we want to do is dive into this in a little bit more tangible detail than just the standard thing that I always see online. Every time I see any content focused around this is just avoiding lifestyle inflation. And that's all well and good. It's by no means is that bad advice. I think that's good advice. However, that's not very tangible. That's not very motivating. That doesn't really do much for your finances other than just like set a hard and fast rule for you. And we're never fans of that. So Andrew, would you mind defining what lifestyle inflation is for people? Basically the idea that anytime you have an increase in income, you're also increasing your expenses.

2:55And so if personal finance, making progress in that is all about spending less than you earn, you'll keep that same buffer, that same difference if you're constantly increasing your expenses as a result of getting a raise. And to your point, it is a very natural thing to do. You got the new job, you have maybe new responsibilities, maybe now you're in management and you have that pay increase to do it, well, you deserve a new car, right? Or maybe you deserve to finally get that living room set you've always wanted. These are all things that go through our heads. So it is very hard to avoid lifestyle inflation.

3:37But like you said, just focusing on all that won't be necessarily very productive because we are emotional people and you can't just say, well, this is the rule, you're going to follow it. That's a very hard thing for most of us to do.

3:53Andrew Sather:Yeah, 100%. We are all emotional human beings, like you said, and trying to follow a hard and fast rule for that, it's just going to be demotivating. It's going to feel like, why am I even working harder to earn more money if all I'm supposed to do is avoid this? Or you see it as too much of a binary. Either I earn more money and I don't get to spend any of it, or I earn more money and I get to spend all of it and get that new car, that living room set, or speakers or something. And that isn't how it has to be. I did just get, I got a couple new speakers. That's why I was saying that, but they were old and used.

4:20Andrew Sather:So it's a very different situation anyways. So to kind of lay the, lay the ground rules for what we're discussing here, the median salary increases around 5%. Obviously that varies drastically by whether you're changing companies, industry, blah, blah, blah, but just to kind of set a framework, we're talking about salary changes, maybe around 5 % or something. Sometimes I've seen friends of mine in the past to have gotten raises, started a new position or whatever, and they've started spending more than what their increase was. That is something that I don't want to say is common necessarily, but it is definitely something that occurs where people feel so confident about the extra padding that they have that they feel like, okay, I can stretch myself even further.

4:59Andrew Sather:Not just spend that extra, but even stretch yourself further. And that's definitely a worst case to try to avoid. And I also want to include that sometimes when you change jobs, your pay can also decrease. There are times where you're pursuing a passion of yours, you're trying to move into a better position that's going to give you a better maybe work-life balance, just a better mental situation at work, less stress or whatever, and your pay may decrease. And trying to handle your finances during that is also just as important and complex as trying to handle it when your pay increases. So we definitely don't want to forget about that possibility.

5:33Andrew Sather:and one of the first tips that comes to mind that I don't tend to see people mention is including all of the hidden expenses there's things like insurance if there's any moving or relocation costs that the employer isn't going to cover what is your food budget some people at work they get a food budget even little things like that oh you get a lunch at work that if you're not getting that anymore every single day the cost of lunch that can add up and change some things what is your 401k matching if your employer did or will match now what is your bonus all of these these background expenses can change the figures for people a lot.

6:05Andrew Sather:Sure, you maybe got a 10k raise or something just to make something up by going over to another position. But now you're missing out on the 8k and 401k matching that you used to get. Well, it's suddenly becoming a lot more of a wash than it was before. So there's a lot more factors to take into account. We'll discuss it a bit more later. But when you lay everything out in a spreadsheet, I would strongly recommend and including as many details of things like that as you possibly can and avoiding just doing, oh, hey, my pay moved up this much, so I can bang, I can save or spend this much or whatever.

6:38Andrew Sather:Include as many details as about the new position. Maybe you don't have all the details yet, but anything you know that would change your financial, any part of your financial situation is incredibly important to include in any overall view of the change. obviously every financial situation is a little bit different but i think the insurance one you mentioned and then also 401k matching those can have major impacts on your take-home pay if i'm considering job a versus job b versus stay at job c i'm probably looking at what's the salary and some of the other things and not thinking about that difference in benefits but that can be hundreds of dollars thousands of dollars whatever it is it could be a big difference to your take home pay which that's what you see at the end of the day when you're making the budget and it could be wildly off from what you expected or what you're used to yeah and i want to emphasize really hard what you just mentioned which is what your take home pay is because too many times and it can be when you try to you just google that how do i handle my finances in this way how do i do this?

7:44Andrew Sather:How do I budget? Blah, blah, blah. A lot of the times they don't make it clear whether the numbers that they're speaking about or recommending or whatever are based on end net take home pay that lands in your bank account or you get to move wherever you want versus your initial gross pay that's untaxed, no deductions, nothing's taken out of it. And what you really need to be focusing on, like Andrew said, is your take home pay, whatever that change at the end of the day is. Because again, you get a 10K raise, but now you're paying a little bit more in taxes and because you're earning more money and you have to pay more for your insurance, maybe your 401k match isn't as high.

8:19Andrew Sather:And all of that can add up to essentially not even being a raise in the end, depending on how it all works out. And so definitely try to use some online calculators or do it by hand because you can pretty easily approximate what your tax burden would have been based on your new pay, based on some numbers you can get online from the IRS. But try to approximate what your actual take-home pay would be and what your actual take-home pay change would be, again, taking into account all of those hidden factors like we mentioned before. Good rule of thumb. So say you did get a raise. Say you got like a$100 raise just to make the math easy.

8:53Andrew Sather:The rule of thumb that I tend to like to live by is take 30 % of that, so$30 in this case, and just use it towards your spending. Feel free to spend it towards whatever you want. If there's some subscriptions you want to get, if there's a higher car payment, whatever it is that will make you enjoy life more, whatever is funding your happiness in your current time, put 30 % towards that. And that gives you a good emotional boost to feel like you're actually getting to use some of this extra money that you're earning. You're actually getting to make your life better over time. Because that's also one of the reasons I don't love the term lifestyle inflation, is that even though it's entirely accurate, it frames any increase in quality of life over time as a negative because it has the connotation of oh well inflation is bad therefore increasing and bettering your lifestyle over time must be bad and i'm not a fan of that whatsoever i think the point of us all working the point of us all trying to get higher paying jobs and everything is to live a better life that's the end goal of money the end goal of money is not commas in a bank account the end goal of money is life and happiness and so let's take 30 of that and spend it towards some stuff that makes you damn well happy and then we take take the rest, the 70 % of it, the$70 in this case, and spread that out wherever you need to for the rest of your savings.

10:07Andrew Sather:So if, say, you have none of your accounts are maxed out, your 401k, your Roth IRA, maybe an HSA or something like that, just spread out that change evenly over all those accounts that aren't already maxed out. And to kind of give you a good frame of reference, like we talked about before, assuming a salary increase of around 5%, that's adding a good 3.5%, 4 % to your savings rate. And that's putting you at a great place because that's a good chunk increase. If you were at 10 % before, you're creeping up on 15 % now. That can be a significant change in your savings rate. But still, again, we're giving you some money for you to be able to go enjoy life a little bit more.

10:46Andrew Sather:Does that sound along the lines of kind of a rule of thumb you would live by? I love the rule of thumb. I wish I could say I've had a rule of thumb because that would probably make things a lot easier and simpler. So we're talking about 30 % of the increase that you enjoy and spend, 70 % of the increase that goes towards savings. Where did those numbers come up with? I like the numbers. Sounds like a good balance. Where did you get those? Obviously, nothing is a perfectly hard and fast rule, but I thought of that because if you're trying to split it 50-50, I feel like usually this is just usually depending on what your pay increase is that is going to be creeping up too close on lifestyle inflation because I also want to take into account that or I should say creeping up on the negative aspect of lifestyle inflation because I also want to take into account that we are emotional imperfect human beings and it's very easy to set a not so hard and fast rule like this and edge over it a little bit more than you originally plan to.

11:49Andrew Sather:And so I feel like if we're at like 50-50 or even leaning harder on the spending, it would suddenly be very easy to creep over into spending the vast majority of it and then not even saving very much of it. And so I want to lean it in the direction of saving so that even if you overspend it a little bit, you're still putting yourself in a good place as well as I'm prioritizing it from the angle of trying to better your future as much as possible while still giving you an emotional boost now by having some money to spend as opposed to the opposite where, hey, you want to better your life, but also it'd be good to save a little bit.

12:23Andrew Sather:I kind of want to flip that perspective. And so that makes me think to flip the ratios and that's tended to work well for me in the past. And that's also something about that ratio is also what I tend to try to do if I get a bonus at work or something like that. Great. It's awesome to get in a chunk of money and it's easy to say, okay, this is free money. Let me go spend it because I got it all at once or whatever. But as much as possible, I want to look at that and say, okay, I'll definitely spend some of this because I want to enjoy it. But also I'm going to try to take the vast majority of this and put that away towards savings, but still have something to spend and enjoy now.

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14:58Andrew Sather:I use this and you should too. Check your health the way I do. Function provides 160 plus lab tests for a dollar a day and member pricing on MRI and CT scans. Join at functionhealth.com slash beginners or use gift code beginners25 for a$25 credit toward your membership. What's the best way to get started in the market? Download my ebook for free at stockmarketpdf.com. Yeah, I love that. Also, I obviously love the margin of safety aspect. So, yes. Yeah. It's always got to have a margin of safety. If your salary is uncertain, if you have no clue, well, not no clue, but if you don't know what exact change you're going to be working with.

15:35Andrew Sather:I had a friend recently who during a job change, they didn't know where they were going to be. They were still during negotiating, but they wanted to play with numbers to figure out, okay, where might I want to be? And the biggest thing for me when you're trying to play with numbers like that is aim for a savings target. Have some kind of the next milestone in savings rate in mind. So if you're currently saving 10 % or something, say, okay, I want to hit that 15 % savings rate, if at all possible, especially if you're changing jobs, if you're getting a promotion or moving up higher in the ladder or something, then getting a significant raise like 10 to 20 % is completely within the realm of possibility.

16:10Andrew Sather:And so upping your savings rate by 5 % is 100 % in the realm of possibility. And so, and that's also just a good target for you to aim for. and so when you're doing those numbers I would plug it all into a budgeting spreadsheet just like our budgeting spreadsheet online and play around the numbers and figure out okay how far would my pay have to increase to be able to spend a little bit more again just to be realistic and motivate you be able to spend a little bit more but also in the end be able to hit your target savings rate that I would say it gives you a good landing point to aim for and feels you makes you feel much more emotionally motivated to hit that number during negotiation than if you were just to say oh well you know hitting$25 an hour sounds like a great round number cool but if you have some reason behind that to push you to hit that$25 an hour then you're much more likely to be successful with it because you're going to be motivated to really hit that number because you see the effect it's going to have on your finances what I really like about what you're saying here is, let's be real, every job has its pros and cons.

17:13So by putting that tangible target, you can really start to compare pros and cons between, do I want to make this move or do I want to stay put? And to your point, you have that number to negotiate towards to say, okay, maybe at this number, these cons are outweighed by these pros, but anything below it now, there aren't enough pros to make up for what I'm either sacrificing or moving into.

17:40Andrew Sather:Yeah, the more of these kind of conceptual feelings that you have about whether a job is worth or not, the more of those that you can put into black and white on a spreadsheet or by hand or whatever it is, the better. I think it'll make it much clearer for you. It'll make you much more confident and certain in your decision. And again, it'll make you only come across as more confident during the process of trying to negotiate for it and therefore only give you a better shot of actually hitting it question for you yes are you a fan of writing out pros and cons lists just in general i honestly i would lean towards no only for the fact that i feel like they don't do a great job of weighting things properly now if you did something like maybe next to each entry you put one through five dots or something and that would help you weigh which pros or cons are more important but i always find it very difficult to say oh this job is a pro because it's giving me a 50 pay increase and also i like the color of the building and now suddenly those are both pros on the list but clearly they're not weighted anywhere close to as much and so i find it very difficult to to get a good accurate conclusion including all the factors from it how do you feel about them yeah i've used them in the past, but not super frequently.

18:59I think a lot of my decisions have been very emotional, and then I'm backing in some numbers to confirm my decision, which probably isn't always the best. But I've made good decisions too. It's not all bad. As long as it's not all bad. We live with it, right?

19:13Andrew Sather:Yeah. But again, we're all humans. We're all trying to live this life. We're all trying to earn money to live and enjoy life. And if sometimes you have to prioritize life a little bit, then there is absolutely nothing wrong with that because that is pretty much always going to be the better option. If you have to choose a binary between the two, you might as well prioritize life than prioritize money because prioritizing money is just, it's never going to get you to the right place. People who prioritize money and say, oh, for now I'm going to, for now prioritize money, I'll earn a bunch of money and then I'll get to just, then I'll get to live whatever life I want to live.

19:44Andrew Sather:Even if that comes soon, even if you're in fire, financial independence, retire early because of doing something like that, people always look back and say, dang, I spent those 12 years grinding. I never ate out. I always declined things with my friends and we kind of waned apart because we were never hanging out. It's not very human to push yourself in that direction. We're not really built to put off any enjoyment just for the long-term financial gain and nothing else. And so sometimes if you have to prioritize life to enjoy it, then so be it. Have you heard any stories from friends or just in general where they made that mistake of not prioritizing life and making a decision that was way too money driven?

20:31And if it's a friend, hopefully they're not listening right now.

20:36Andrew Sather:I do actually, I have a couple options that come to mind, but one is both prioritizing money and just earning as much money as possible, but also what comes along with that. Because if you were able to say, okay, I'm going to work the same hours and I'm going to quote unquote prioritize money and earn a crap ton of money, then there's nothing wrong with that. But usually what comes along with it and what I have seen come along with it in my personal life with people that I know is simultaneously having to prioritize money and prioritize all of your time towards earning that money and doing nothing else.

21:07Andrew Sather:And I have definitely seen that lead to extreme burnout and it tends to lean towards extreme decisions afterwards in the complete opposite direction. And not only is that just not a good place to be in when you're making those super large financial swings or drastic financial decisions but it also it is proof to me that the emotional mental time whatever load that prioritizing money and nothing else puts on you isn't worth it or else they would be willing to just step away from it and say okay cool I'll go back to normal now that I've earned all that money I'm all set I did what I planned to do we're good to go I'm back to normal if that were feasible then I think that more people would do it.

21:54Andrew Sather:But too much of what I see in my personal life or people that I know through somebody else's stories I hear, whatever, it tends to be the situation where they push themselves really hard and then they never have a choice but to push themselves so hard that now they want to completely swing the opposite direction and make up for all that enjoyment that they missed or whatever. And they send themselves down crazy rabbit holes just to try and pursue that and make up for lost time. And now they're losing so much of the money that they had saved all along the way. And then now they're going to put themselves swung the opposite direction that they're going to have to try to come back up from and reach the middle again where they would want to be.

22:33Andrew Sather:Have seen it personally work out, not so positively. Have you seen anything like that, Andrew? Now you're going to make me try to think about it. Yeah, there you go. There you go. Not so easy. I don't think I'm as popular as you. I would struggle on this. I have noticed just kind of like, I don't know. You don't want to be judgmental, but sometimes you can tell when somebody is maybe a little bit older and they haven't had, maybe they've sacrificed too much. And then to your point, it goes to the other side of kind of being a little, just not acting in your stage of life, I guess. So I think I've noticed that.

23:14And yeah, there's a lot to what you're saying about it's going to be something you'll pay for most likely at some point or the other. You might not feel it right away, but it can pile up and then, yeah, it's not always a great place to be. Yeah.

23:31Andrew Sather:And I do also like that phrasing that it's putting off a stage of life because again, all of this has to take into account the human factor. And so if you're pushing super hard to avoid lifestyle inflation 100 % and that's causing you to not spend any money whatsoever right now, you are, I guarantee you going to regret it in one way or another. I'm not saying that it'll be the horrible wrong decision. I'm not saying it'll ruin the rest of your life or anything that drastic, but I am saying that in experience in anybody that I've known, anybody that Andrew's known, you're going to have missed a stage of life or at least feel like you've missed a stage of life because of doing something like that.

24:08Andrew Sather:And so yeah, long Long story short, just aiming towards nothing but money, aiming towards resisting lifestyle inflation as much as humanly possible is not going to be, it's not going to be sustainable. Like it or not, we're all part of a society that has societal expectations and we have expectations because of those societal expectations about our own lives, about our friends' lives or whatever. And if you try and bug that too, it's going to be very tough. but to bring it back to home base another thing to keep in mind if you're making a jump for a job change is to make sure you have an emergency fund so even if you're making one of these drastic changes and you're prioritizing money and nothing else you still absolutely need to have an emergency fund and the biggest reason that comes to mind for me is that many or most i'm honestly not sure what kind of a percentage it is but i do believe that most jobs out there can fire you within 30 days with no warning whatsoever.