Financial Runway
The number of months your accessible savings could cover essential expenses if income stopped.
Definition
Personal financial runway is calculated by dividing liquid savings by monthly essential expenses. It shows how long you could manage without income. Runway helps with decisions like changing jobs or handling unemployment, but it is an estimate: costs can change, and illiquid assets do not count.
Examples
• 6,000 in accessible savings ÷ 1,500 monthly essentials = 4 months of runway. • Cutting essentials to 1,200 extends the same savings to 5 months.
What counts as liquid
Cash and easily accessible savings count. Retirement accounts with penalties, property and volatile investments are usually excluded.
Using runway for decisions
Compare runway with realistic job-search times, planned breaks or seasonal income gaps.
Limitations
Runway ignores unexpected costs and assumes expenses stay steady. Add a margin for safety.
Also Known As
Personal runway · Months of coverage
Key Takeaways
- Runway = liquid savings ÷ monthly essentials.
- Lower costs extend runway.
- Treat it as an estimate with margin.
Frequently Asked Questions
Many aim for three to six months; irregular earners and sole earners often need more.
An emergency fund creates runway; runway is the measurement.
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