Rich celebrities go broke when the houses, cars, and staff they took on in their best years keep costing money after the big paydays stop. If your income swings, set your budget by a lean year’s pay instead, and send anything above it to savings or one-time spending.
Mike Tyson earned an estimated $300 million in the ring. He bought mansions, Bentleys, and jewelry, kept Bengal tigers as pets, and filed for bankruptcy in 2003.
MC Hammer’s 1990 album sold more than 10 million copies. He bought a $30 million home and, by his own account, put 200 people on a payroll that at times reached $1 million a month. His next album didn’t match those sales, and in 1996 he filed for bankruptcy owing nearly $14 million.
Neither earned too little. Both signed up for costs that assumed every year would be their best one. A bigger mortgage, car payments, and support for people who count on you cost the same after your income drops. Cutting them means selling a house, selling a car, or having a hard conversation, and none of that happens fast.
If your pay rises and falls with commissions, bonuses, freelance work, or gig hours, pull your take-home pay for the last three to five years and find the leanest one. If you’re in a high-earning stretch that may not last, use what you’d earn once it ends. Build your regular budget, fixed bills and everyday spending alike, on that number.
Say you took home $95,000, $70,000, and $52,000 over the last three years. A budget that runs on $52,000, about $4,300 a month, still works in your worst year. In better years, everything above that goes to savings or one-time spending, like an extra loan payment or a trip, and never to a new monthly bill.
If the leanest year is too tight to live on, budget on your average, about $72,000 here, and hold a cash reserve sized to your swings rather than the standard three to six months of expenses. A year like your worst would leave that budget about $20,000 short, so keep at least that much in cash.
Your best year is a bonus, not a baseline. Before you take on a new monthly bill, make sure your worst year could pay it.
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