Build Your Own Personal Runway
By: David Ferrara
Tags: Cash, Dreams, Saving, Life, Side Hustle

A Startup Runway

In the startup and venture capital world, there is a concept of a runway.

Runways for startups are typically measured in months, if you are lucky, in years.

A company that is building its technology and pre-revenue is burning cash each month hoping that when the technology is built and sales take off, that investment will pay off. To reach that turnaround point, the Company needs significant amounts of cash upfront. To fund their cash burn in those early years.

The simple calculation for a runway is the amount of cash you have on hand divided by your monthly cash burn.

i.e., if a Company has $1.2M and burns $100K a month. Then they have a runway of 12 months. By the end of 12 months, they better either be cash flow positive or have their next financing round lined up.

Or well, bad things happen.

Photo by Jp Valery on Unsplash

Your Own Personal Runway

A lot of people use this concept without calling it a runway. You are young; you want to go backpack Europe. You can save up $5K. You try to calculate what your expenses will be and think you can make it on $1.5K a month. So, you go backpack Europe for 3 months and have a little bit leftover at the end.

Well, why not apply this line of thinking to build your own personal runway. A runway to take you from your 9–5 to turning that side-hustle into a business. Or to become a writer, or programmer, or videographer, or whatever it is you dream of doing.

A Lot of People Feel Stuck

Do you feel stuck in a job you don’t really enjoy? Or perhaps even worse, dread getting up and going to every day. Or are you stuck in a career path you realized after working in for a while that it just isn’t for you?

Do you have a hobby, perhaps something you’ve even started making money doing? Or have dreamed about making money doing something you enjoy doing. Wanting to quit everything and become a ski instructor. Or maybe you want to get into a music career or writing career, open a CrossFit gym in Brazil, or whatever it is.

But you are stuck. Because you need a certain amount of money each month to pay the rent, car payment, credit card bill, etc. And you know that you will make nowhere near that amount of money each month if you quit what you are doing now and focus on your passion full time.

At least not in the beginning. Hopefully, one day the dream is you can make a living at it, of course.

Build a Runway to Where you Want to be

Well, that is where the runway comes in.

Suppose you find yourself perhaps treating yourself to luxuries. Perhaps racking up a bit too much in expenses at restaurants. Or feeling in order to survive this job, you need a really nice apartment downtown or a new SUV for commuting so at least part of your day can be spent enjoying something. Try a different approach.

Treat yourself to your dream instead.

Cut back on all that stuff you don’t need and start building your runway instead.

The Two Components

There are two parts to the calculation.

1) How much cash you have on hand

2) How much cash you burn each month

How much cash you burn each month drives how much cash you need to save. That is number two above drives number one.

So, cutting out those larger expenses changes how much you need to save as well. If you aren’t commuting to an office downtown every day, will you still need that expensive apartment in the most expensive part of town?

Suppose you are going to be doing something that can be done remotely. Say a blogger or vlogger, or freelance marketer, for example. You could drastically reduce your cashburn and thus decrease the amount you need to save.

If you simply cannot or are unwilling to cut back. Well, then you can still do it. Assuming your expenditures are currently lower than your income, of course. It will just take longer to save up what you need.

How many cushions — What Kind of Risk do You Have?

In the example above of the college student. They don’t need much cushion. If they miscalculated and spent $2K a month. Well, then they run out of money in the middle of month 3. They call home… Dad buys them a plane ticket home cutting the trip a couple of weeks short… and they move back in with Mom and Dad to regroup.

In the case of the startup company. Well, they have the exact opposite situation. Nobody is going to give a Company losing vast sums of cash every month sufficient funding without going through a lengthy process. And if they actually hit $0 in their bank accounts, payroll gets missed, all the employees will be gone by the next week, and the Company is done.

You are probably somewhere in between the two above scenarios, so plan accordingly.

Low Risk (Young, No Kids, Have Support)

If you are young and your parents have a spare bedroom. Perhaps, you can take more risk and don’t need to raise as much cash.

Want to become a programmer… but can’t find the time because you spend too much time in your cubicle in that job that isn’t leading anywhere?

Well, if I was in my twenties. I’d figure out the best online courses, move to South East Asia where I can live on $1K a month, and then spend 6 months to a year studying as if my life depended on it. Learn enough for that first job, move back in with the parents when I get back and then start job hunting.

You don’t have many risks at this point in your life. So, go ahead and live your life as if you don’t have many risks as well.

Higher Risk (Older, Have Kids or Family, No Support)

If you are older and perhaps have a family and are the sole source of income. You will need to do things very differently. If you think it will take you a year to replace your income with your side-hustle, you might want to make sure you have enough for that year, perhaps another in case it takes a little longer, and then perhaps another as your cushion.