Several career milestones are notable for their income shifts, be it a new job, a promotion, a hefty holiday bonus or a salary increase recognizing a job well done. Or you might be launching or buying a business. From unexpected obstacles to new career opportunities, these career twists may also warrant reflecting upon and revising your financial plans.

And let’s not forget retirement’s impact upon your finances! Many people believe that they may never stop working completely — either due to a lack of funds or a desire to stay engaged in meaningful work.

Yet the reality is that outside factors such as health or workforce changes could result in the need to retire — perhaps suddenly. With that change can come a significant shift in income.

Of course, military service members may begin retirement years or even decades before their non-military friends and family. This can thrust them into a major salary pivot early in life.

Finally, being fired or laid off can obviously yield salary changes. Sudden job loss can lead to an abrupt disruption in one’s financial stability, prompting the need to adapt short- and long-term financial strategies to manage the financial impact.¹

It’s possible that you might encounter several career-related income shifts during your lifetime. In turn, each one could prompt you to rethink the flow of money into and out of your investment, checking and savings accounts.

Fortunately, we have suggestions on how you might work through these major salary shifts with more confidence.

Let's consider how you might ease the impact of large income shifts.

A simple strategy for navigating a major salary change

Having a strategy with which to work can help you navigate salary shifts throughout your career.

Whether you work through the plan verbatim or modify steps to suit your needs, you might want to keep the following strategy in mind to help weather both positive and negative changes.

1. Revise your personal budget and set up an emergency fund.
Major salary changes can be a good opportunity to conduct a thorough review of your budget. Plus, you can create a buffer against negative developments by creating and maintaining an expense management strategy.² Then, if and when change comes, you can more easily identify areas where adjustments can be made to align with your new income level.

To begin, build a monthly budget that prioritizes essential expenses — housing, utilities, groceries. Be sure to allocate funds to discretionary spending, too.

Meanwhile, it can be helpful to establish and keep an emergency fund covering 3-6 months of living expenses to create a financial cushion for unforeseen events (e.g., job loss, inflation spikes, recession).

This cash reserve may seem like an unnecessary indulgence when things are going great in your life, but the pool of funds can be a deep relief to you (and your family) when money is tight.

Have you recently lost your job? Then you might also want to look closely at other ways to ease the financial impact of job loss,³ including:

• Applying for unemployment benefits
• Looking for riders on your life and disability insurance policies that may temporarily waive premiums
• Exploring a home equity line of credit (HELOC)

2. Tackle debt strategically.
In a perfect world, no one would ever need to go into debt. Yet it’s a reality for many people.

When you have ample cash on hand, you may want to consider resolving high-interest debts like credit cards to reduce interest expenses. This is one common way to better manage your debt.⁴

If money is tight — and you need to prioritize other expenses, then work toward building out a debt repayment strategy when funds are flowing better in the future.

3. Review and revise short- and long-term financial goals.
When you find yourself dealing with a financial windfall or short on cash, you might want to adjust short-term objectives (e.g., saving for a vacation or a new car) and long-term goals (e.g., retirement planning or saving for college) to ensure they align with your new income reality. Consider refining contributions to savings and investment accounts accordingly, too.

4. Examine possible tax implications.
Yes, salary changes may have serious tax implications. Consult with a tax professional to understand how income adjustments might affect your tax liabilities.

Feeling especially flush with funds? Explore tax-saving strategies such as contributions to tax-advantaged retirement accounts or using available tax credits. And don’t forget about tax-savvy wealth transfer solutions, either!

5. Consider paying off or refinancing big-ticket items.
You may also want to reconsider major financial commitments. If your salary change is favorable, think about paying off — or refinancing — your mortgage, which could lead to lower payments and reduced interest rates.

If you’re experiencing a career setback, then you might want to explore ways to alleviate major expenses through refinancing or downsizing.

»Tip: Planning to buy a new home soon? Talk with a mortgage lender before paying off any large debts or making big purchases (e.g., a car or extravagant vacation). On the one hand, less debt could improve your credit score and lower your debt-to-income (DTI) ratio. On the other, you may have less cash on hand for a down payment. Plus, a sudden spike in activity on your credit report could be a red flag.

6. Meet with a financial advisor to review your plans.
Whatever your current season of life, it can be useful to conduct a comprehensive review of your financial plans with a financial advisor. They can provide personalized guidance on investment strategies and risk management as well as help tailor a plan for your specific situation and goals as your circumstances evolve.

»Tip: Changing employers? Review the options you can take with your 401(k),⁵ and consult with your financial advisor to assess the potential impact of your choices.

7. Pause and reflect to further refine your strategy.
Recognize and celebrate positive salary changes, whether it’s a new job, a promotion or another significant move.

Remember to reflect on the lessons that you’ve learned from difficult times, as they may help you make better financial decisions in the future. Acknowledging your achievements — or your challenges — can motivate you to stay focused on your long-term financial goals.

Heading into retirement soon? Making the switch from saving to spending can be a doozy — even more so if you’re also juggling responsibilities such as paying for a child’s education or tending to an elderly relative. As with any other financial transition, it may be worthwhile to speak with someone who has helped people in similar situations.

Special financial considerations for business owners

It probably goes without saying that buying or selling a business can significantly impact not only your finances but also your taxes. Fortunately, there are actions you can take in advance that may reduce risks.

When buying a business:

• Perform a risk assessment. Evaluate the risks within the industry and market conditions as well as the potential impacts (favorable and unfavorable) upon your personal finances.
• Evaluate the liquidity of your assets to provide flexibility to fund the purchase — and plan for potential cashflow constraints as you take over the business.
• Consider how to best manage the financial considerations⁶ of starting/owning a business, including property taxes, deductions, financial planning for retirement, a retirement plan for employees, insurance and more.
• Integrate the business with your financial goals. You might want to think about retirement and legacy planning, too.

When selling a business:

• Work with financial, legal and tax professionals to develop a tax-efficient exit strategy.
• Explore ways to lessen capital gains taxes and take advantage of any tax incentives that may apply to the sale.
• Plan to preserve and manage any wealth generated from the sale. A financial advisor can help you create a comprehensive plan and long-term strategy while you manage the business and its eventual sale.

»Tip: When purchasing a business, remember that seeking professional advice from financial advisors, tax experts and specialized attorneys early in the acquisition or sales process may improve your confidence. A thoroughly integrated approach may also help you balance better your personal financial goals with business needs.

Special financial considerations for retiring military

Are you a military service member anticipating retirement or separating from service? You might want to consider the impact of this employment shift.

In addition to a salary change, you’ll also be navigating the loss of your basic allowance for housing (BAH) and your basic allowance for subsistence (BAS). While not part of your taxable income, BAH and BAS are key to providing for your cost of living, so don’t overlook those figures as you plan your transition⁷ from military life.

You’ll also want to keep in mind that if you are retiring and are eligible for a military pension, that amount will only be a percentage of your current salary. This may mean a little belt-tightening with your household budget as you make the transition to civilian employment.

»Tip: Unless you continue working for the federal government in some capacity, you’ll no longer be able to invest in the Thrift Savings Plan once you’re separated from service. Consider talking with a financial advisor experienced at helping military service members and retirees puzzle through whether they should roll over the funds or consolidate retirement assets.⁸

The takeaway

Life brings an abundance of change, and income fluctuations can be a part of that mix. If you find yourself navigating a major salary shift, remember that there are simple things you can do to make the transition go a little more smoothly. Even better? Anticipate that changes may occur, and plan accordingly.

When you’re navigating major salary shifts and other life events, it can also be important to make or modify existing savings and investment strategies to better suit your needs. RBFCU Investments Group and our team of financial advisors can help you find the right investments that fit your needs, timeline and budget.