What is financial runway? A plain guide for individuals

Financial runway is the length of time you could keep paying your bills with the money you have, if no new income arrived. Start-ups use the idea to know how many months they can operate before the bank balance reaches zero. It works just as well for a person or a household, and it is a better question than “how much do I have?” because it turns a balance into time.

The formula

Runway = spendable cash ÷ monthly costs.

If income continues but is smaller than your costs, divide by the gap instead: cash ÷ (monthly costs − monthly income). If your income is larger than your costs, your cash is not being drawn down at all, but it is still worth knowing the first number, because it shows what would happen if work stopped.

A worked example

Suppose you have 120,000 in spendable cash and your costs are 40,000 a month. Your runway is 120,000 ÷ 40,000 = 3 months, or about 91 days. If a part-time income of 15,000 a month would carry on, the gap is 25,000 and the runway stretches to 120,000 ÷ 25,000 = 4.8 months.

What counts as cash

Count money you could spend this week: bank balances, mobile wallets and cash in hand. Leave out fixed deposits and investments you could not use without a penalty or a loss, and take off any bills that are already due, because that money is spoken for.

What counts as monthly costs

Everything that leaves every month: rent, food, utilities, transport, loan installments, subscriptions, school fees and money you send to family. For costs that vary, use the average of the last three to six months rather than your best guess.

Why days are more useful than months

“About three months” sounds comfortable. “91 days” sounds finite. Counting in days also lets you price decisions: at 40,000 a month, you burn roughly 1,300 a day, so a 12,000 purchase costs about nine days of runway. That is the idea behind measuring money in time.

Three ways to make runway longer

• Trim a recurring cost. Cutting 2,000 from the example’s monthly costs lifts runway from about 91 to 96 days, and the effect repeats every month.
• Bring income forward. Chasing a late invoice or taking one extra job adds cash without changing your costs.
• Delay what can wait. A purchase postponed is runway kept.

Common mistakes

• Counting locked savings as if they were spendable.
• Forgetting bills that are due but unpaid.
• Leaving out irregular costs such as annual fees or festival spending.
• Treating expected income as cash you already hold.

To see your own number, use the runway calculator. To decide how long it should be, read how many months of expenses to save.

Frequently asked questions

What is a good financial runway?

There is no single number. Many planners suggest three to six months of essential costs for a steady income, and more for an irregular income or when others depend on you. The guide on how many months to save explains how to choose.

Is runway the same as an emergency fund?

Not quite. An emergency fund is the money you set aside. Runway is how long that money, and your other spendable cash, would last at your current spending.

Should runway include my income?

Show both. The cautious figure assumes income stops, so it is cash divided by monthly costs. If income continues but is smaller than your costs, divide by the gap instead.

This guide is general information, not financial advice. Your tax, debts and plans are your own, so check what applies to you.