How To Become Rich When Your Earnings Fluctuate Each Year
Written by
Cindy Lamothe
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
If your earnings fluctuate each year, it can seem difficult to plan for the future. It might seem like having a fixed income is ideal, but experts say it’s still possible to become rich regardless.
“Building wealth with an irregular income requires a strategic approach focused on creating stability and leveraging high flexibility periods,” said Dennis Shirshikov, head of growth at Go Summer.
Below are more experts’ top recommendations for becoming rich even when your earnings fluctuate.
Establish a Buffer Account
A fundamental strategy is to establish a buffer savings account, often referred to as an emergency fund.
“This should ideally cover 6 to 12 months of living expenses, providing a financial cushion during leaner months,” Shirshikov said. “The importance of this cannot be overstated, as it prevents the need to incur debt when income is low.”
Rhett Stubbendeck, CEO and founder of Leverage Planning, recommends the same.
“At Leverage, we recognize the unique financial challenges faced by those with irregular incomes, such as freelancers and gig workers,” he said. “To help navigate these challenges, we recommend establishing a robust financial buffer. Unlike the typical emergency fund, we suggest saving six to 12 months of expenses.”
He added, “We’ve seen that this larger buffer provides stability and enables strategic financial decisions, even in fluctuating income situations.”
Utilize a High-Yield Savings Account
Stubbendeck advises utilizing high-yield savings accounts for your buffer.
“The interest rates are generally better than traditional savings accounts, allowing your savings to grow while remaining accessible,” he explained. “For example, one of our clients, a freelance graphic designer, uses this approach to smooth out the financial ups and downs of freelance work.”
Apply Zero-Based Budgeting
Shirshikov noted that another effective strategy is to adopt a zero-based budget, where every dollar earned is allocated a specific purpose — be it spending, saving, or investing.
“This approach ensures efficient use of income, regardless of its size or regularity,” he stated. “For example, during months where income exceeds average expectations, extra funds can be diverted to investment opportunities such as low-entry ETFs or mutual funds, which can yield compounding returns over time.”
Diversify Your Income Sources
Diversifying income sources is also crucial.
According to says Stubbendeck, “Real estate investment, such as purchasing rental properties, can provide a steady stream of income that complements the unpredictable nature of freelance earnings. We’ve helped clients invest in properties that offer consistent rental returns and potential for appreciation.”
Develop Passive Income Streams
“At [my company], we emphasize the importance of passive income streams,” Stubbendeck said. “Options like dividend-paying stocks or peer-to-peer lending can generate ongoing income without the need for constant active management.”
Live Below Your Means
“That means consistently spending less than you earn, even when those earnings fluctuate from month to month,” said Alec Kellzi, licensed CPA at Kellzi Group. “Build a very lean budget covering just basic needs during lean times, and bank as much surplus cash flow as possible when earnings are higher.”
He said those banked funds become your financial reserve to tap into when pay is lower.
Increase Your Income Streams
According to Kellzi, having multiple overlapping revenue sources provides more stability and breathing room.
“More income flowing in increases financial flexibility and potential savings capacity. Rely on that diversification rather than just a single income spigot that can easily get turned off,” he advised.
Pay Yourself First
“Make sure to pay yourself first by prioritizing consistent contributions to tax-advantaged retirement accounts and general investment accounts,” said Kellzi. “Modest amounts invested consistently over many years can grow into a substantial nest egg through the magic of compounding returns. Embrace a long-term wealth-building mindset beyond this month’s income roller coaster.”
Avoid Debt at All Costs
“Guard against consumer debt like the plague,” Kellzi warned. “Unpredictable income patterns combined with outstanding loan balances are a surefire recipe for financial peril.”
He continued, “Avoid financing spending with debt as much as possible by sticking strictly to your lean budget. Interest expenses can quickly negate any positive savings or investing momentum.”
Prioritize Insurance Coverage
Kellzi recommends having proper insurance coverages in place for extended periods of low or no income.
“Disability insurance is worth considering to protect your income and earnings potential,” he suggested. “Having an adequately funded emergency cash reserve allows you to comfortably ride out the lean times without going into debt or raiding your retirement savings.”
More From GOBankingRates
