How to make the most of a pay raise
(MoneyWatch) COMMENTARY Just accepted a new job? Congratulations! After battling your way through updating your resume, tapping your professional and social networks, and passing through the gauntlet of multiple interviews, you deserve it.
But you're not done yet: As you get ready to start your new job, be sure to maximize the value of your new salary with these important steps.
Ask for more. It's not a matter of being greedy. Your hiring manager has a salary and benefits band within which he or she must work, and it's unlikely you were offered the maximum amount available (unless you're a really hot property and they wanted to hire you very badly). There's nothing wrong with asking for more to see if you can take advantage of that inherent flexibility. Importantly, don't limit yourself just to base salary -- you might be able to get a signing bonus or a more attractive relocation package, including temporary housing while you look for somewhere to live. They might have more flexibility with their stock award budget than salary, for example. It doesn't hurt to ask.
Roll over your old 401(k). Don't neglect your old 401(k). You've got a few options, such as rolling it into your new company's 401(k) or converting it into an IRA. Either way, don't just cash it out, or you'll be slammed with the full tax burden of the accumulated savings of the 401(k) and lose the tax-deferred benefit that fundamentally defines what a 401(k) is. You might also be able to leave it with your former employer's program, but if your total 401(k) investment is small enough, they have the option of cashing it out and sending you a lump sum payment, which again carries tax penalties. Be sure to talk to your outgoing HR department for details if you're not sure what to do.
Divert some of your new salary into savings. New job, new cash flow picture. You might be moving to a new location with a different cost of living, or you might have a higher take-home salary. Before you get a chance to settle into any routines, take this opportunity to divert some money from each paycheck directly to savings. If you never see the money appear in your checking account, you'll never miss it.
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