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Got a New Job? 4 Tips to Maximize Your Situation

Did you just start a new job? Congratulations! I hope you’ll get along with your new boss.

With your higher salary and new benefits, here are four questions you might be thinking about, and tips on how to approach them.

1) What should I do with my higher salary?

This is a great time to examine how your spending reflects your values and goals. Do you want to get rid of your debt, or save for a house? Do you want to retire early, or give more to your favorite charity?

Reflect on these three questions created by well-renowned financial planner George Kinder, to help draw out what’s important to you.

Afterwards, create a budget that reflects your priorities in life. Develop a system to help you be accountable to yourself.

2) How do I maximize my benefits?

The biggest decision you may have to face is which medical insurance plan is best for you. Do you pick a low deductible but higher premium plan? Or the opposite? Each has its pros and cons and will depend on how likely you anticipate needing medical care.

An equally big decision is how much you should contribute to your 401(k), and which investment funds you should select (see below).

Many great benefits are often overlooked, including signing up for a Flexible Spending Account, Health Savings Account, pre-tax commuter benefits, legal services, and additional term life insurance coverage. This is not for everyone, but depending on your situation, you might benefit from availing some of these.

3) What do I do with my old 401(k)?

Look at the fees that each mutual fund charges in your old 401(k). Compare them with the fees in your new retirement plan. Fees are like termites. They’re tiny, but they’re eating away our retirement savings. Studies show that over 90% of lower-cost funds outperform their expensive counterparts.

If your new 401(k) has lower expense ratios, moving your old 401(k) to your new plan might save you a lot of money.

You also have the option of rolling over your old 401(k) into an IRA with a brokerage firm like Vanguard, TD Ameritrade, Fidelity or Schwab. The main advantage of this is you will often have better investment options to choose from.

4) Which funds do I choose in my new 401(k)?

You’ll have to decide how aggressive you want your portfolio to be. Stocks can generate more returns over the long-term but will go up and down significantly (perhaps up to +/- 40%). Decide how much value fluctuations you can stomach.

You will also want to diversify across different types of investments. A well-diversified portfolio will often contain U.S. stocks, international developed market stocks, emerging market stocks, and bonds.

Target-date funds are an option, but you might be able to lower your fees (and increase long-term returns) by individually picking funds.

 

Do these questions resonate with you? How do you plan on going about answering them? If you’d like to ensure you are making more informed decisions, reach out to a credentialed financial planner.

 

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Alvin Carlos, CFA, CFP®

About Alvin Carlos, CFA, CFP®

Alvin Carlos, CFA, CFP® is passionate about helping middle class professionals make smarter financial decisions. He is the CEO of District Capital Management, a financial planning and investment management firm for the everyday people. Alvin is a CERTIFIED FINANCIAL PLANNER™ practitioner and has a Masters degree in International Relations from SAIS-Johns Hopkins. In his spare time, Alvin enjoys swing dancing and Ultimate Frisbee. He also volunteers for Catholic Charities’ new Financial Stability Network, which helps low-income folks with their finances.

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