Runway

Runway summary:

• A runway represents the amount of time you can pay your expenses without having an income.

• The longer a runway you have, the more peace of mind you could experience.

• Boosting your emergency savings and reducing your expenses are ways to give yourself a longer runway.

Runway definition and meaning

A runway is the amount of time you can cover your expenses without an income. Having a longer runway means you can pay your bills for a longer period of time without landing in debt. 

Key concept: Your runway could help you cope with a job loss, illness, or other financial hardship.

Comprehensive breakdown of runway

In the context of personal finance, your runway represents the amount of time you can cover your costs using only savings and assets without having an income. It's typical to calculate your runway in terms of months. If you have a six-month runway, it means you can get through a six-month period of no income without having to take on debt to cover your costs.

Having a runway is important because you never know when you might lose your job or find yourself faced with an unexpected expense. If you don’t have a runway, you could find yourself needing debt relief down the line. 

It's best to try to give yourself as long a runway as possible. If you have a six-month runway, you're likely to have more peace of mind than with only a one-month runway, or no runway at all. 

Financial experts usually recommend having a minimum three-month runway—meaning, having enough money in savings to pay for three months of essential bills. The runway you should aim for depends on your personal situation. 

Some people may feel comfortable having a two-month runway. Others may need a six-month runway at a minimum to feel financially secure. 

Some of the best ways to lengthen your runway are:

• Building or boosting an emergency fund

• Reducing expenses so your cash reserves last longer

• Consolidating debt with a lower interest rate so it costs you less each month

It’s better to rely on savings—and other assets you can sell or cash in—for your runway instead of taking on debt. Sure, you might have a $10,000 credit limit on your credit cards you could use if you became unemployed and needed a way to pay your bills. But eventually, you’re going to have to pay that credit card off. And in the meantime, you could risk accumulating a lot of interest. 

A longer runway could help you avoid or minimize debt. That could protect your credit score and finances on a whole.

Runway example

Let's say you have a $12,000 emergency fund and your essential monthly expenses come to $3,000. That gives you a four-month runway. If you were to lose your job, you'd be able to cover your bills for four months before needing to charge expenses on a credit card or take out a loan to cover your costs.