Smart Financial Strategies for Unpredictable Income Streams

The “feast or famine” cycle is a familiar reality for freelancers, entrepreneurs, and gig workers. One month might bring a significant windfall, while the next feels unnervingly quiet. This income volatility can make traditional financial planning seem difficult. However, with the right approach, you can work to smooth out the bumps, reduce financial stress, and pursue long-term wealth.

The key isn’t to eliminate unpredictability, it’s to create a system that thrives within it. By managing your cash flow, building a safety net, and investing strategically, you can turn variable income into an effective tool for working toward your financial goals.

Market Pulse

The independent workforce is no longer a niche, it’s a significant and growing part of the modern economy. In 2023, 64 million Americans, or 38% of the total U.S. workforce, performed freelance work, contributing an estimated $1.27 trillion to the economy. This trend is particularly strong among younger generations, with 52% of Gen Z and 44% of millennials participating in freelance work.

This fundamental shift highlights the increasing need for financial strategies that cater to non-traditional career paths. As more professionals choose flexibility and autonomy, understanding how to manage variable income is becoming an essential skill for economic security. The old model of a steady paycheck is evolving, and our financial habits must evolve to support stability and growth.

The Big Idea

A powerful strategy for managing volatile income is to proactively allocate every dollar. Instead of one big pot of money, consider creating separate accounts for specific purposes. A popular method suggests opening accounts for:

• Operating Expenses
• Owner’s Pay
• Taxes
• Profit

When you receive a payment, you can distribute percentages into each account. For example, you might allocate:

• 30% to Taxes
• 50% to your salary (Owner’s Pay)
• 15% to business expenses
• 5% to Profit

This system, often called “paying yourself first,” is designed to help you set aside money for taxes and your personal salary. It transforms your cash flow from a confusing lump sum into an organized system, giving you clarity and helping to prevent accidental overspending during high-income months.

Siebert Spotlight

Building a strong financial future can benefit from trusted guidance, a principle at the heart of Siebert’s philosophy. Mark Malek, Siebert’s Chief Investment Officer, emphasizes developing the next generation of advisors through a unique in-house training program. This program brings in individuals from diverse backgrounds including sports, hospitality, and the military, and pairs them with seasoned mentors.

As noted in Siebert’s approach:

“We’ve developed an in-house training program through which those advisors pass on the skill sets required to build our advisors of the future.”

This commitment aims to ensure that Siebert’s team has a well-rounded perspective, ready to help clients navigate a wide range of financial challenges, reflecting a culture built on durable relationships.

Financial Wellness

For anyone with a variable income, an emergency fund is a key component of a financial plan, it’s your primary buffer against lean months. While traditional advice often suggests 3 to 6 months of living expenses, freelancers and entrepreneurs may consider aiming for 6 to 12 months.

It can be helpful to base this calculation on your essential expenses only:

• housing
• utilities
• food
• minimum debt payments

To build it, you could automate a percentage transfer from every payment you receive into a separate high-yield savings account. Even 5% to 10% from each check can add up over time. This dedicated fund can help prevent you from having to dip into long-term investments or take on debt when projects are delayed.

Gen Z and Money

Retirement planning can feel daunting without an employer-sponsored 401(k), but self-employed workers have access to other powerful alternatives. The SEP IRA and Solo 401(k) are examples of accounts designed for this purpose.

A SEP IRA allows you to contribute up to 25% of your net self-employment income, which may be suitable for those with significant earnings. A Solo 401(k) can be a strong option if you want to save aggressively, as it allows contributions as both the “employee” and “employer,” potentially letting you save more at various income levels. These accounts offer tax-deferred growth, but remember that withdrawals in retirement are typically taxed as ordinary income.

Final Word

Managing income volatility is the foundation of financial freedom for the modern professional. By implementing structured strategies, you empower yourself to build stability and wealth on your own terms, honoring the trailblazing spirit of financial independence that our founder, Muriel Siebert, championed.

Ready to take control of your financial future? Connect with a Siebert advisor today to create a personalized strategy for your variable income.

Share this with a friend who is navigating the freelance economy and could benefit from these strategies.

• Upwork Freelance Forward 2023 Report: https://www.upwork.com/research/freelance-forward-2023-research-report
• IRS Retirement Plans for Self-Employed: https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people
• Bankrate Solo 401(k) vs. SEP IRA: https://www.bankrate.com/retirement/solo-401k-vs-sep-ira/
• Kiplinger SEP IRA vs. Solo 401(k): https://www.kiplinger.com/retirement/retirement-planning/sep-ira-vs-solo-401k-which-is-better