Sofia: Buffers and irregular income

Meet Sofia

“Some months I’m rich. Some months I’m counting.”

Sofia’s income swings from a few hundred dollars one month to several thousand the next. Her costs do not swing. In rich months she feels free; in lean months she worries about rent. The fix is not earning more, but separating when money arrives from when it is spent.

The situationFreelance designer · Income arrives in lumps · Some months are rich, some lean
The decisionWhat steady “salary” can she pay herself, and how large a buffer does she need to keep it steady?
Sofia’s toolsBuffer calculator, Irregular income smoother, Return on skills

The portrait and the quoted line are illustrations written for this companion. Situations follow the book; figures on this page are modelling assumptions.

Explore the numbers

Work through the case, step by step

Each step uses a tool with Sofia’s situation already filled in. Change any number to see another outcome.

The swingsPay yourself a steady salary

Sofia’s numbers. Modelled for this case, ready to change.

Move the salary up and down. The buffer is the shock absorber.

Lowest the buffer reaches: $1,700Never below zero
Largest steady salary that works: $3,100Given your starting buffer
Average monthly income: $2,958
Months below essentials if you spent what arrived: 5
Buffer needed to start at zero: $1,300Deepest dip at this salary

Month on the horizontal axis.

Buffer balance
Income that arrived

What this means

The line is the point: income swings wildly, the buffer swings less, and your spending stays steady. If the buffer dips below zero, either lower the salary or hold a larger buffer before starting.

Raising the salary above the sustainable level means borrowing from the future, which is how irregular earners drift into debt.

Notice: Raise the salary above the “largest that works” and the buffer goes negative: that is borrowing from the future.

Open the full “Irregular income smoother” page: formula, worked example and cautions →

The sizeHow big should the buffer be?

Sofia’s numbers. Modelled for this case, ready to change.

Irregular income calls for more months of cover.

Suggested buffer: 6 months$15,000
You have: 1.2 months
Gap to close: $12,000
Time to close the gap: 3 yr 4 mo

What this means

This is a rule of thumb: three months for a steady income, more as income gets less predictable or more people rely on it.

Build the buffer before investing. A market dip is far less frightening when a car repair does not force you to sell.

Notice: Six months is a starting point for irregular earners. Her real answer is in the smoother above.

Open the full “Buffer calculator” page: formula, worked example and cautions →

The assetIs a new skill worth it?

Sofia’s numbers. Modelled for this case, ready to change.

For a freelancer, skills are the engine. Test an investment in one.

Pays back in: 0.8 years
Net present value: $10,688
Total outlay: $2,300
Total extra income over the period: $15,0006.5× the outlay

What this means

A positive NPV means that, at your discount rate, the investment pays for itself and more. A short payback reduces the risk that circumstances change before you benefit.

Compare this with other uses of the same money and time: there is always an alternative, including doing nothing.

Notice: Be conservative on the uplift. If it still pays back, it is worth serious thought.

Open the full “Return on skills” page: formula, worked example and cautions →

The figures on this page are modelling assumptions chosen for this companion to illustrate the situation. They are not quoted from the book, and are not personal advice. Change every one.

The lesson

Irregular income is manageable when spending follows a steady rule, not the bank balance. A buffer turns lumpy income into a predictable life.

In the book: Ch 7: Resilience: Buffers, Shocks and Irregular Income · Ch 8: Priorities: What to Do First · Ch 23: Your Largest Asset: Earning Power

Now your turn

Apply the same idea to you

Meet the others

DavidIncome without wealth MariaThe quiet power of margin Anir & KatiaThe biggest decision of their lives GraceRetirement across systems

Sofia29

Work through the case, step by step

What this means

What this means

What this means

Apply the same idea to you