As you advance through your career, significant changes to responsibility and title may result in meaningful increases in compensation. While you likely will enjoy the increased cash flow in your checking account, it is also an opportunity to consider how the increased income affects your long-term plans. Whether you have become a partner at your firm, been promoted into an executive role, or paid off a loan with a large monthly payment, we suggest you review the following areas to ensure you are still on track for your goals and have optimized where you spend your additional income.
- Review your month-to-month cash flow. If you are building excess cash in your checking account, you may want to consider other vehicles for your cash that earn a higher rate of interest, such as online savings accounts or CDs.
- Make sure you are taking advantage of opportunities to defer income that are available through your employer. If you have been making Roth contributions to your retirement account, it may be time to switch to traditional contributions to reduce your taxable income.
- Advancing in your career means you may begin receiving some of your compensation in stock or equity in your company. Make sure to work with your JNBA Advisory Team to help understand the vesting schedules and tax implications of different types of stock compensation.
- With an increased income, you may feel comfortable paying for other conveniences to help manage your day-to-day schedule. After a significant change to compensation, it can be worthwhile to consider how best to optimize the new cash flow to remain on track towards your long-term goals while finding opportunities to pay for outside resources to assist with responsibilities at home which take up another valuable resource: time.
- If you have a goal of retiring early, make sure you are saving for retirement outside of your employer retirement plans. You cannot access these plans until you are age 59 ½, so if you want to retire before then it is important to build up some after-tax investments as well.
As financial life planners we are here for whatever changes life throws your way, including changes in income that affect all areas of your life. If you’ve recently experienced an increase in income, or you are expecting an increase soon, reach out to your JNBA Advisory Team to discuss strategies to help you stay on track towards your goals.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
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