Monte Carlo Simulation for Freelancers: Beyond Average Income
Your average monthly income might be $8,000, but average is a lie. In reality, 10% of months you earn under $4,000, and 10% you earn over $12,000. This distribution—not the average—determines your real emergency fund need.
That's where Monte Carlo simulation comes in.
Why Averages Fail Freelancers
Traditional financial planning uses averages: "You earn $96k/year, so your monthly income is $8,000." But this ignores volatility. Monte Carlo simulation runs thousands of scenarios to show you the full range of outcomes—including the worst-case scenarios you need to plan for.
How Monte Carlo Works
Monte Carlo simulation generates thousands of random income scenarios based on your historical patterns. Here's the process:
- Input your data: Average income, volatility (standard deviation), client concentration
- Generate scenarios: Run 10,000+ random simulations matching your patterns
- Track outcomes: For each scenario, calculate your minimum balance over 12–24 months
- Find R*: The starting cash needed to avoid ruin in 95–99% of scenarios
Instead of saying "save 6 months," Monte Carlo tells you: "You need $52,000 to have a 95% chance of avoiding ruin over the next 12 months."
Run Your Own Monte Carlo Simulation
Calculate your personalized emergency fund using 10,000+ simulations of your income patterns.
Try Free Calculator →The Bottom Line
Average income doesn't tell you how much cash you need to survive bad months. Monte Carlo simulation does.