Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?
1, Whether it’s being made partner or paying off a loan, make sure you review your cash flow and other financial areas to ensure you’re optimizing additional income.
2, Inventory your monthly bills to see if you are charged for anything you are not using.
3, It might make sense with new responsibilities to see if outsourcing activities like landscaping, house cleaning or tax preparation might help you find extra time.
4, Equity opportunities within your company help you share in its success but can also cause income fluctuations. You may need to start making estimated tax payments. And understand how a sale might affect you.
As you advance through your career, significant changes to responsibility and title may result in meaningful increases in compensation. While a bigger salary will mean more 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 or co-owner 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. If you find the opposite is true for you and that, as your income has increased you have taken on expenses that are stretching the monthly budget, you’ll want to inventory your recurring monthly bills to see if there are items you can eliminate, such as subscriptions you never use.
Make sure you are taking advantage of opportunities to defer income that are available through your employer or business.
For example, 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. You may also be eligible for other employer-sponsored deferral opportunities such as a deferred compensation plan or an employee stock purchase plan. If you work with a financial adviser or tax professional, be sure to discuss these various deferral opportunities to help you optimize tax efficient savings.
With an increased income, consider paying for 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 toward your long-term goals while finding opportunities to pay for help with responsibilities at home. If there are certain tasks that you are finding harder to complete given your increased professional responsibilities, consider outsourcing where you can. For you it might be landscaping, house cleaning or someone to prepare your taxes.
If you have a goal of retiring early, make sure you are saving for retirement outside of your employer retirement plans. In most cases, 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.
If you have received equity in your company through a partnership buy-in, stock grants or an employee stock purchase plan, consider the impacts to your cash flow and taxes.
Equity in your company allows you to share in the firm’s success, but it can also mean your income will vary from year to year and even from quarter to quarter. You may need to start making estimated tax payments to cover your tax liability, and it’s important to understand how an eventual sale of the company could impact your individual financial and tax situation.
These considerations aren’t just for key employees. If you own a business and you are considering bringing team members on as partners or promoting them to an executive role with increased compensation and benefits, you will want to think about how the factors above will impact your ability to retain your top talent. How you structure equity awards and executive benefits will impact their cash flow, taxation and ultimately their job satisfaction. As your net profits grow, you may also want to consider executive deferred compensation programs that can provide you, as the majority owner, with tax benefits along with those team members and minority partners participating in the program.
Certainly, there are many ways in which increased income can positively affect your life and lifestyle. By taking even a few minutes to initially review various aspects of your finances, even a small increase can have a strong impact on your overall financial plan.
JNBA is not an accountant nor an attorney and no portion of the above should be construed as accounting or legal advice. All accounting or legal issues should be addressed with an accounting or legal professional of your choosing. Please see important disclosure information at jnba.com/disclosure.
