Starting a new job or getting a promotion can be an exciting but also stressful time.
In addition to adjusting to your new position and workplace, you may find yourself adjusting your personal budget and finances.
Whether you’ve been out of work for a while and are just now getting back on your feet, or you’re climbing the career ladder and are transitioning into a better-paying job, you’ll need a financial plan to keep your budget on track.
Even though this might be a busy time in your life, you still need to make budgeting a priority – and to avoid some common financial pitfalls made by people entering new career positions.
Here are seven of the worst money mistakes you can make when starting a new job or receiving a promotion:
Mistake #1: Splurging or spending based on your new income.
You received a big pay raise or a sign-on bonus with your new position. Congratulations! You should be proud of your accomplishment and you may feel it’s a good time to celebrate. But tread carefully, because it’s all too easy to go overboard when you know that “extra” money is on its way.
Unfortunately, a lot of people earning bigger salaries immediately start spending a lot more money: they “upgrade” their wardrobes, begin doing home renovations, or even just start paying for additional products and services because they believe they can now “afford” it with their heftier paychecks.
To keep your finances in tip top shape, however, you need to guard against this kind of behavior. Economists call it “income creep.” It basically means that as we make more money, our spending tends to rise to a level that matches that our bigger paychecks.
So try to avoid big shopping sprees or impulse purchases, as these can set you back further than you anticipated.
You can also keep your spending in check with a healthy dose of reality: a 10% pay hike or even a 20% raise may seem like a lot. But you also have to factor more taxes into the equation as well, so focus on your net earnings, not your gross income.
Put everything in black and white and see how much extra cash you’re actually taking home. Then keep your spending well below your take-home pay.
Mistake #2: Applying for a new “prestigious” credit card.
If you’re enjoying a pay increase with the new job, you might be tempted to sign up for that credit card you had been thinking about for a while. Perhaps it’s a gold or platinum card, something that seems to reek of success.
Even though you might increase your eligibility for certain types of credit cards, try to avoid falling into the credit card and debt trap. Since “hard” inquiries, or new applications for credit, can lower your credit score, you should only apply for credit when you really need it.
Be smart about spending only the cash you have and enjoy the extra money you’re now earning with a realistic budget and spending plan.
Mistake #3: Leasing a new car.
Buying or leasing a new car is often at the top of a priority list when someone gets a raise or starts earning more money. A nice luxury car makes many people feel that they’ve arrived – and done so in style!
However, consider the pros and cons of taking on any type of auto loan or lease agreement.
Don’t make the impulsive choice to get a new car solely because of a pay increase. There’s no guarantee that you will still have that job a year or two from now. But you likely will still be responsible for paying off that car loan or meeting the auto lease term — regardless of your employment status.
Mistake #4: Ignoring your budget altogether.
Whether you’re earning more money or getting a pay cut as you start the new position, make sure you’re adjusting your budget to account for the change in your financial status.
Take the time to rework your budget if necessary and factor in additional commuting costs, work-related food expenses, and the cost of a new wardrobe.
For those who’ve relocated for a new job, it can be costly to move from one state to another, so take these expenses into account as well.
Remember: all of these expenses will be part of the “cost” of having your new position.
Mistake #5: Neglecting your old or new 401(k).
If you want to roll over your old 401(k) into your new 401(k) plan, make sure you don’t procrastinate unnecessarily or simply forget to handle this task.
You’ll need to ask your old employer for an election form so that your existing 401(k) funds can be transferred over as soon as possible and deposited directly into your new 401(k) retirement account. Avoid having your 401(k) funds being paid out directly to you, as this could trigger unwanted taxes and penalties from the IRS.
It’s equally important that you start contributing to your new 401(k) as soon as possible after you get a new job. Don’t put it off thinking that you’ll get to it later. A lot of people who delay this process wind up spending a year or more on the job before they finally enroll in their employer’s 401(k) plan. You don’t want to make that mistake.
So just talk to your new employer’s HR department right away, and fill out a direct deposit sheet for future 401k contributions. Make sure you’re aware of any matching programs offered by your new employer, and get into your 401(k) plan without delay to get the most out of your employment benefits as soon as you are eligible for them.
Mistake #6: Avoiding insurance decisions.
A change of employer usually means that you will have to wait for any insurance benefits until at least 90 days of employment. With some employers benefits can kick in sooner. But either way, you should make sure you have a plan in place to your cover basic insurance needs during your employment transition.
Talk to an insurance agent about your current insurance alternatives and what your options may be given your present or future work situation.
If you’re currently employed, but anticipate moving to another job, you may be able to purchase supplemental life insurance or supplemental disability insurance. Both of these forms of insurance are portable and can be transferred with you to your next job, unlike employer-sponsored insurance benefits that typically end when you leave a job.
If COBRA benefits are available from your old job due to a layoff or downsizing, look into getting those benefits as well.
Mistake #7: Telling “certain” people about your bigger paycheck.
As much as you might like to shout from the rooftops and tell the world your good news about a promotion, or a higher-paying job, it’s sometimes best to refrain from sharing this information with “certain” people.
You know you who they are. Some are haters, who’ll think you’re bragging and will dismiss your accomplishment. Others are people constantly asking you for a handout or a “loan.”
They may be relatives or close friends, but if you think a family member or buddy will see your bigger paycheck as a good excuse to hit you up for money, then you might want to be discrete about your financial situation.
I’m not saying you can’t divulge the fact that you’ve obtained new employment or received a promotion. But I do suggest being tactful in discussing the financial aspects of your job.
It may be best to simply omit any conversation about salary altogether, and focus instead on the intellectual challenges, career growth and professional development your new position will offer.
By following these seven steps, you’ll avoid the financial mistakes that many people make when they get a new position or a higher paying job. Knowing how to budget accordingly and avoid certain money blunders will help solidify your financial security, as well as your peace of mind as you climb the career ladder.
Because even with a bigger paycheck, as the saying goes: “It’s not about what you make, it’s about what you keep.”