6 Tips to Grow Your Savings on an Irregular Income

For the past seven years, the vast majority of my income has come from freelance work.

While I enjoy the entrepreneurial aspect of my career and the notion that through hard work I can significantly increase my income in a way a standard salaried job would not necessarily allow me to do, there are still drawbacks to this lifestyle. Most significantly, I never really know how much I will make from month to month.

And worse, while some months I bring in an adequate amount of money, there are plenty of months when my income drops sharply.

These fluctuations are challenging at best (particularly as a single mother, which means I’m a single income household.)

I’m not alone in experiencing this sort of volatility. Countless Americans experience income fluctuation.

In fact, a 2017 Pew Research Center survey found that 34% of American households experienced year-over-year fluctuations in their income of more than 25%.

If you’re among the households with a fluctuating income, here’s a look at some of the ways to manage your money from month to month and stabilize the roller-coaster ride throughout the year.

1. Create a Budget

Establish a budget that identifies every penny that comes in and goes out of your bank account. This will help you get a handle on your cash flow.

Create a spreadsheet online that details all monthly bills and essential spending items such as food and gas, or use one of the many budgeting apps now available. Options include YNAB – otherwise known as You Need a Budget; Mint; and Wally.

Developing a budget allows for clearly identifying the minimum amount you need to get by each month.

“The best possible way to stabilize an unpredictable income is to create a spending plan and budget,” said Bobbi Olson, a budget coach and host of CentsAble Chat. “This will … give you a simple, easy-to-follow plan for any money that comes in, whenever it comes in.”

In addition, for those with unpredictable income, it’s a good idea to plan as far ahead as possible so that you’re not forced to borrow money to cover forgotten or overlooked expenses, Olson said. And don’t forget to account for any irregular expenses that don’t necessarily require being paid monthly.

“Car insurance, car repairs, annual subscriptions, medical expenses – these can creep up on you and really trip you up if you’re not thinking about them,” Olson said.

2. Treat Savings as a Mandatory Bill

As you’re tallying those bills, don’t neglect to include savings contributions among monthly expenses.

People with variable incomes can and should still save, said Sean Fox, co-president of Freedom Debt Relief.

“For those with variable incomes, saving will likely be a variable versus fixed expense,” Fox said.

To get started, identify a percentage of your income to contribute to savings each month. With each check received, whenever and however often you get paid, set aside that pre-determined percentage for savings. While many experts suggest setting aside 15% to 20%, even 10% is a good amount, Fox said.

The “variable” element of your savings each month is tied to the fact that 10% of your income will increase and decrease as your income fluctuates, but the contribution percentage should not vary.

To ensure you’re contributing to savings each month, set up an automatic deduction that regularly transfers money from a checking to a savings account, Fox said.

3. Start an Income Stabilization Fund

The rationale for establishing savings is that it will serve as your income stabilization fund, or as money coach Beverly Miller likes to call it – your “hill and valley fund.”

“Those who live with large income fluctuations — for example, Realtors — especially when just starting out, need to have a savings account that we call a hill and valley fund,” Miller said. “You plan your monthly budget based on a monthly income that is at or below your overall monthly average.”

When you earn an income higher than that budget amount, the extra goes into the hill and valley fund. Conversely, when you have a month where you’re short, you withdraw from the hill and valley fund to get back to that normal monthly budget amount.

Ideally, this savings account should have anywhere from three to six months of living expenses in it, Fox said.

“Those with fluctuating incomes can take from the emergency fund during lean times and then pay it back when income increases,” he said. “When doing this, it’s critical to get comfortable with pulling from, and replenishing, these funds on a regular basis.”

Fox also advises saving any “windfalls” you might receive during the course of the year.

“If you receive a bonus, a gift or any other ‘extra’ money, get in the habit of saving that money. If you keeping doing this – in addition to saving the regular pre-determined percentage of your income, your savings will increase much more quickly,” he said.

4. Look for Trends

Typically, people with fluctuating incomes will see some earning patterns emerge over the years.

Those patterns include identifying when your income tends to be higher and lower.=

This information is critical to planning ahead for the lean months, during which you will ideally have a savings to tide you over.

5. Develop a Side Income

Finding a manageable side hustle is a good way to add some cushion to your fluctuating income, says Matt Edstrom, an expert in finance, professional and personal development, and chief marketing officer of GoodLife Home Loans.

“You shouldn’t take on more side work than you can handle because that can be a recipe to burn out, which will impact all of your work,” Edstrom said. “However, setting aside a reasonable amount of weekly hours you can dedicate towards bringing in money from outside sources will allow a wave of relief to wash over you when those bare times approach.”

6. Maintain the Right Financial Mindset

There will likely be good times during the course of a year when you’re earning more money, perhaps even flush with cash. When these seasons arrive, don’t start spending frivolously.

Rather, continue to save plenty of money, says Lauren Klein, a certified financial planner and founder of Klein Financial Advisors, a firm whose mission is to help women gain the confidence to navigate life’s transitions, including situations that create income volatility.

“When you’re earning more, be careful not to overspend,” Klein said. “Instead, keep an eye on your longer-term budget.”

Nancy Butler, a professional motivational speaker, business coach and award-winning author echoes this sentiment, suggesting that the key to ultimately surviving a fluctuating income over the long term is adopting the proper mindset during the lean times.

“It’s been said that people do not know how to handle financial success. That especially applies to people with variable income,” Butler said. “What I mean by that is when the income is there, you can sometimes feel like you can finally spend the money you have not been able to for a while.”

The problem with that thought process, however, is if you continually think that way, you’ll never get escape the financially difficult position you’re in.

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Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune. 

Mia Taylor

Contributor for The Simple Dollar

Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations such as The Atlanta Journal-Constitution and the San Diego Union-Tribune. Taylor holds a graduate degree in Journalism and Media Studies and had a fellowship to study journalism at the San Diego affiliate of National Public Radio. Over the course of her career, she has won numerous journalism industry honors, including five awards from the North American Travel Journalists Association and the 2011 Walter Cronkite Award for Excellence in Journalism.