The Financial Pros and Cons of Job Hopping

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Job hopping has become an increasingly popular trend, because workers believe it can be a quick and effective way to increase your salary.

While it’s not always the case, switching jobs can result in a significant pay increase because it provides an opportunity to negotiate a salary that aligns with your current market rate (based on your role and skill set). In contrast, staying in one job for a long time typically means small, incremental raises, such as cost of living increases that may be closer to 3%.

It’s easy to see why job hopping has gained traction against this backdrop, but before you go ahead and quit one job for another, it’s important to weigh the financial pros and cons. Here’s what to consider first, to ensure you’re making a smart decision.

What Exactly Is Job Hopping?

At its core, job hopping means you have held multiple jobs in a relatively short period of time, or changed jobs frequently, usually within a few months up to two years.

Past generations of workers were taught to show loyalty to their employers by staying there for many years and seeking promotions in order to climb the ladder. But there are many reasons job hopping has become an acceptable and even smart career move. You might realize a job isn’t what you thought it would be, for instance, or you may want to pivot into a different role entirely. Perhaps switching jobs is normal in your industry, or you simply have a desire to make a career change. As a career coach, we generally encourage people to job hop! But before you do so, we say “know your reasons and run your numbers.”

The Financial Pros of Job Hopping

1. Increased Salary Potential

The biggest benefit to job hopping is a rapid increase in salary. Studies show that professionals who job hop, typically around every two years, significantly outearn their peers. While you might negotiate a raise at your current job, the market rate for your role and experience may have changed since you landed your last position, and another company may be willing to pay a higher salary to attract top-tier candidates.

2. Sign-on Bonuses and Other Perks

Another financial perk to job hopping is the range of incentives that may come with your new job. For instance, you might receive a sign-on bonus each time you change jobs, which could amount to as much as 5% to 25% of your salary, or thousands of dollars. You may also get other bonuses or financial assistance, such as relocation assistance.

3. Faster Career Advancement

Job hopping can also lead to quicker promotions and career progression, especially in industries where this is common, such as tech. This rapid scaling in your career results in a higher earning potential over time.

4. Diversified Skill Set

Finally, changing jobs every few years can help you gain and sharpen a broader range of skills and experiences, which can make you more marketable – again, potentially leading to higher salaries in the long run.

The Case Against Job Hopping

1. Lack of Job Security

While job hopping might boost your salary, it also comes with some risks, such as reduced job security. Frequent job changes could make you appear less stable to potential employers, which might impact your long-term job stability. Also, without seniority or tenure at the company, you may be a prime target if the company has layoffs.

2. Potential Loss of Benefits

Changing jobs frequently can result in the loss of benefits like health insurance and retirement benefits, which can impact your long-term financial planning. Before leaving a job, you ideally want another job with benefits in place so you can pick up where you left off, or you want to have an alternative plan, like joining your spouse’s health insurance plan.

3. Impact on Retirement Savings

Job hopping can negatively affect your contributions to retirement plans, particularly if your previous employer was providing retirement contribution matching. In a perfect world, you want to move to another job with better benefits, not worse, but that isn’t always an option.

4. Higher Tax Implications

Frequent job changes can lead to higher taxes, especially if you received lump sum payouts. This isn’t necessarily a dealbreaker for most people, but it’s good to be aware of these implications and consider strategies to mitigate them.

The Bottom Line

When considering job hopping, it’s essential to weigh the financial benefits against the drawbacks. Long-term financial planning is crucial, as is considering your personal and professional goals. Job hopping can offer significant financial benefits, such as increased salary potential and faster career advancement – but it can also come with risks, like reduced job security and potential loss of benefits. Before you make any decision, we recommend weighing the pros and cons and seeing what your options are.

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