My wife and I recently moved back to Montana. She just finished Physician Assistant school and is about to start her career. We’re settling into a familiar place with fresh opportunities.
Before this, we managed on a single income, adjusting our own plan to make it work. Of course, we had accounted for this period, but now that she’s starting work again, we’ll need to adjust our plan once more to reflect the increase in cash flow. That means getting our savings back on track and, at some point, taking a vacation.
With more income comes new financial choices. After our first trip back to Montana to look for places to live, we found ourselves eyeing an upgrade to our well-worn car. The money would be coming in soon, so why not? It was a tempting thought.
Many clients face similar moments when their cash flow increases. Financial success isn’t just about earning more, it’s about making intentional decisions that align with long-term goals. Without a plan, it’s easy for extra income to slip away rather than being put toward what truly matters.
Understanding Different Types of Income Growth
Not all income increases are the same, and the way you approach them should reflect that.
One-time windfalls, like bonuses, stock grants, or inheritances, can come with strong emotions. Some people feel pressure to preserve the money for future generations, while others see it as an opportunity to take care of outstanding financial needs, or simply to enjoy the money now in a meaningful way. Either way, having a strategy in place helps ensure these funds are used wisely.
Conversely, cash flow increases like a salary raise or eliminating regular expenses, such as college tuition or childcare, have a sudden but lasting impact. They require thoughtful consideration of how to adjust your plan. Can you use this extra cash flow to make “catch-up” contributions to retirement accounts? Increase your 401(k) contributions? Being intentional with these changes helps ensure your money is working toward what matters most to you.
Working With an Advisor to Plan Wisely
A sudden increase in income can feel like financial freedom. Before making major decisions, take a step back and consider how this new income fits into your broader financial picture. Setting clear goals provides a roadmap to ensure financial growth leads to stability.
Here are a few steps to take when your cash flow increases:
- Prioritize Debt Repayment: Paying down debt is a key step toward maximizing your new cash flow. Eliminating what you owe, especially any high interest balances, creates flexibility and allows you to put your money toward the future you want to build.
- Automate Savings and Payments: Setting up automatic transfers for savings or paying down debt removes the temptation to spend. Keep it simple and eliminate the choice. By doing this, you’re automatically making a choice that benefits your long-term financial future.
- Buy Flexibility: Beyond just saving, think of this money as buying future flexibility. Whether it’s for unexpected medical expenses, a sabbatical or even a career change, having financial freedom opens doors, regardless of what life throws at you.
- Define Priorities: Which should you do first, pay off your mortgage or increase your retirement account contributions? The answer depends on your unique situation and personal goals. Some people find peace of mind in reducing debt, while others prefer to focus on investing and growing wealth. Whatever your priorities, defining them ensures you have a clear goal to work toward.
Keeping Emotions in Check
Emotions play a significant role when cash flow grows. More income can create the urge to spend, but by working with an objective Advisor who can spot spending habits or behavioral patterns can help maintain balance.
Your financial history often influences how you approach money. Those inclined to spend may feel tempted to upgrade their lifestyle, while natural savers might hold onto cash without a clear purpose. Both approaches have downsides, it’s important to focus on your financial future, but also to enjoy the money in a responsible way.
Managing Lifestyle Creep
Lifestyle creep, the gradual increase in spending as income rises can be easy to overlook. It often starts small: dining out more often, upgrading technology, or increasing discretionary purchases. While there’s nothing wrong with enjoying financial progress, unchecked spending has its consequences.
Here’s how to keep lifestyle creep in check:
- Be Intentional: Increased income doesn’t require an immediate change in lifestyle. Small spending adds up quickly, so keeping track of new expenses is important.
- Balance Today and Tomorrow: Additional cash flow isn’t about restricting yourself, it’s about enjoying life today while taking the steps to have a secure future.
- Spend with Purpose: Align spending with personal values. Whether it’s saving for a home, traveling, or planning for retirement, financial decisions should reflect what truly matters to you.
Enjoying Financial Success Intentionally
Once financial priorities are in place, it’s okay to enjoy the benefits of increased cash flow:
- Celebrate Wisely: If there’s something meaningful you’ve been wanting, a vacation, a home upgrade, or a new car, plan for it within your financial framework.
- Give Back: Consider donating to causes you care about, which can enhance your happiness while making a positive impact.
- Stay Balanced: Sometimes, the best reward isn’t a purchase, it’s the peace of mind that comes from financial security. Remember, choosing not to do something is still a choice.
Every financial decision involves trade-offs. Having a plan ensures that you remain in your control, rather than being driven by impulse.
Revisit and Adjust Regularly
Financial plans should evolve as your cash flow changes. As your income, priorities, and goals shift, so should your strategy.
Consider these steps to keep your financial plan aligned with your needs:
- Regular Check-Ins: Review your financial plan periodically with your Advisor to ensure it reflects your dreams, concerns and values.
- Open Communication: If financial decisions ever feel overwhelming, talk with your Advisor since they can provide clarity and objective guidance.
When navigating financial changes, having an advisor by your side can make all the difference. A trusted advisor helps you align your cash flow with your goals, recognizing that financial decisions aren’t just about numbers, they’re shaped by your behaviors, emotions, and vision for the future. An increase in cash flow presents new opportunities and choices, from enhancing your lifestyle to strengthening long-term financial security. With the right guidance, you can find the balance between enjoying today and preparing for tomorrow, ensuring your financial decisions support what matters most to you.
