Maybe it’s just me, but I’d never heard the word “runway” used in a finance sense until recently. The result of a combination of ignorance and/or being incredibly absent-minded. Forgive me but I tend to only read the life and art section in the Financial Times, do I need to say more? To me, “runway” always meant airports or fashion shows. The truth is, I’ve never been particularly good at managing my finances, but it never occurred to me that I should put more effort into it. (Finance? shrugs)
I’m going to share my personal finance journey in another post, and I promise it’ll be a real page-turner – motivating, even! If you knew my financial situation in my twenties versus where I am today, you’d be fearless and genuinely believe that everything will be fine if you put in the effort. (Spoiler alert: it involves a lot of instant noodles.)
But let’s get back to “runway.” I asked Phillip about it. (Who is Phillip? Check out this post to find out!) Here’s what he said:
In finance, runway is the length of time a company has to operate with its current cash reserves before it runs out of money, assuming expenses and revenue remain constant. It’s a critical metric for startups and venture-backed companies to understand their cash flow and plan for future funding rounds, with a common target being 18-24 months of runway, although a more conservative 24-36 months is often recommended in today’s environment.
So, it makes sense that I hadn’t heard of it before. After all, my relationship with corporate finance remains at the “department budget” level. I was never at the pay grade or in roles that needed to know our company’s runway. This also clearly explains why the word has become more common these days as startups have become such a key driving force in the world of tech and sustainability. Financial runway is obviously very critical to a startup. However, I must shamelessly admit I wasn’t aware of this term in such a professional context.
I was intrigued by the word because it’s starting to be used more widely in personal finance. When someone asks, “What’s your runway?” (or, grammatically correct, “How long is your runway?”), they’re asking how long you can sustain yourself financially without a job while maintaining your current (or a reasonable) lifestyle. I thought we already had a term for this: the “F**k-You Fund.” There’s a minute difference between them, but – unless you’re keen to argue semantics – they’re largely describing the same thing. (Though, let’s be honest, “F**k-You Fund” is way more fun to say.)
The fact that such funds/runways are becoming popular topics is both healthy and worrying to me. It’s healthy because I can’t highlight enough how much financial safety means to your mental health. This isn’t saying you need to be rich, but the fund is financial security that allow you to feel safe. But it’s also worrying because how come the modern workspace constantly leads us to think about and prepare for an escape plan. It’s, of course, no coincidence that these topics are recommended to me by algorithms; hence, I picked up this word. It’s because it’s a popular topic and because I match the metrics! This leaves me wondering: fine, how much do I need to save? And how long a runway do I need, considering I’m a slow runner, so a little goes a long way, I guess?
The answer, of course, is “it depends.” What a magic phrase that voids all accountability from advisors! The recommendation is 3-6 months of your current salary. Whether it’s 3 or 6 months depends on your job category and the job market situation. If you’re in a role where it’s not hard to find a new job, you can aim for 3 months. If you’re in a more senior position, niche role or self-employed, it’s recommended to aim for 6 months. If your monthly salary is 5000 and fixed expense is 3000, then 6 month runway would be ideally 5,000×6=30,000 and absolute minimum 3,000×6=18,000 (not recommended). You would be fine anywhere between 18,000 and 30,000.
Nowadays, apologise for being pessimistic, the world that we are in, I would say please, love, don’t quit your job without at least 9 months or a year fund to sustain a minimum-viable life! It’s not a small sum unless you are extra frugal…no one just has that without intentionally saving for it! Maybe we need to discuss saving and how to grow our saving in next post? (Spoiler alert: Sustainable Investment is obviously a keen interest of me and no way you do not expect this in this blog, right?)
So, how long is your runway?