Financial runway: what it means and how to calculate it

The calculation

Use the formula when spending exceeds recurring income. With $600,000 of cash, $100,000 monthly income, and $130,000 spending, burn is $30,000. The Cash Years engine returns 20.0 months.

The large figures are illustrative; the ratio works the same at a different scale or currency.

Define “cash” carefully

Include funds available without selling illiquid property, paying a severe penalty, or waiting an uncertain period. A home, expected bonus, and credit limit are not equivalent to cash in an emergency. Match reserve currency with the obligations it is meant to cover.

Define recurring income conservatively

Salary and durable contracts may belong in the baseline. A one-off sale or project can increase cash after it arrives, but should not automatically reduce future burn. Cash Years excludes one-time income from its recurring monthly baseline for this reason.

Limits of runway

The measure assumes constant recurring inputs. It omits inflation, payment dates within a month, taxes, debt interest, and unexpected shocks. Treat it as an early-warning indicator and run a stress case with lower income, higher essential costs, and less available cash.

The Consumer Financial Protection Bureau emergency-fund guide describes a dedicated cash reserve as protection against unplanned costs. It does not prescribe one runway target for everyone.