risk
Financial Runway
The rule
How many months your cash lasts if the income tap stops today.
Where it flips
Piling up too much idle cash means money that could grow just sits still, losing value to price rise. The repair is to keep a sensible runway, then invest the extra.
Count the cash you have saved. Divide it by what you spend each month. That number is your runway, the months you could survive with no income. A longer runway keeps you calm. Calm people make better money choices; scared people make bad ones.
A worked example
Arjun spends 40,000 a month and has 4.8 lakh in the bank. His runway is 12 months, so a layoff will not break him. [illustrative]
How to spot it
- ·You do not know how many months your cash lasts
- ·One lost job would sink you in weeks
- ·All your money is either idle or fully locked away
Scott Trench · Set for Life