It’s a popular time of year for annual job performance reviews and corresponding pay raises. Along with celebrating this good news, it’s wise to think about how that increase in income can impact multiple financial decisions. Certified financial planner Suzanne Himes, with Asset Planning Corporation, has some of the changes to consider when our paychecks will be larger.
SUZANNE, THIS IS ONE OF THOSE NICE PROBLEMS TO HAVE, ISN’T IT?
Agreed! And it’s a great opportunity to look at several areas of our financial planning.
Top items to review when income increases
- Cash flow
- Retirement plan contributions
- Tax planning
- Insurance coverage
WHAT’S THE NUMBER ONE ACTION?
It’s all about cash flow
- Review and update your budget/spending plan
- Consider updating timetables for existing financial goals or possibly creating new goals
- Try to save 50% of that raise
WHAT ARE SOME OF THE OTHER THINGS WE SHOULD BE CHECKING?
- Review the amount you are able to contribute to employer plans
- Consider increasing if not already maxing out
- Are you or your spouse planning to contribute to a Roth IRA?
- Confirm that you’re still under the income limit to make direct contributions, or if another method is necessary
- Same thing goes for deductible traditional IRA contributions
- Review your expected taxable income for the year, will you be in a higher tax bracket?
- If so, may need to adjust your tax withholding or make quarterly estimated payments
- An increase in AGI may affect ability to deduct certain items
- Charitable donations
- Medical expenses
- Periodically review current life insurance, including employer/group plans; update if needs have changed
- Review disability insurance; update coverage to reflect your new income
Bottom line: Be intentional to make the most of a good thing!