This content was created by Matt Paulson. This content was uploaded by Matt Paulson. This is a YouTube video titled "How to Calculate Your Financial Runway" (created 2014-07-28). It is a single-speaker educational talk (speaker labeled SPEAKER A) directed at entrepreneurs about managing irregular income. The speaker defines financial runway (months you can go without income), explains why it matters for entrepreneurs, gives a concrete example calculation ($20,000 ÷ $4,000 = 5 months), notes longer-term factors (interest, investments, inflation), and directs viewers to a runway calculator on mattpulson.com with a link in the video description.
Chapters
When you work for an employer, you know how much money you're going to make in any given month. You have a set salary or an hourly rate and earn approximately the same amount of money each month. You also operate under the assumption that you're going to have the same job or similar job indefinitely where you earn basically the same amount of money. When you're an entrepreneur, those guarantees simply don't exist. Your income is irregular by nature, and it can be very difficult to project how much income you're going to make over the course of the next several months. You can't ever really know for sure if your business is going to keep generating the same amount of money as it has in the past, or whether or not you're going to see a significant jump in revenue, or if your income is going to tank because of some unknown future event. You don't know when a competitor is going to eat your lunch, and you don't know when your business model is simply going to stop working. For these reasons, it's especially important for entrepreneurs to keep track of some basic financial metrics to know how long you can weather out a storm if you suddenly have a decline in income. The metric that best identifies how financially stable you are is your financial Runway. And financial Runway is simply a measure of how many months you can go without earning any additional income before you run out of money. So let's say that your business disappeared or you lost your job tomorrow and you have 12 months of expense set aside. That means you can go one year to grow, or you have one year to grow your business to the point where, where it generates enough income to provide for your monthly expenses before you run out of money at the end of your one year financial Runway, your business will either have taken off and sustained your monthly expenses indefinitely, or you'll have crashed at the end of the Runway and you'll have to go out and get a job. The basic way to calculate a financial Runway is simply what does it cost you to live every month and how much money do you have? So let's say I have $20,000 in the bank and I have $4,000 in monthly living expenses. 20,000 divided by 4,000 means I have five months in. I have five months of financial Runway. So if I lost my business tank today, I'd have five months to turn things around before I have to go get a job. The math is a little bit more complicated than that. Over the long term, based on the money you get in interest, on the money in your savings account, and your investments as well as the rate of inflation. So if you would like to know how much financial Runway you currently have, I've set up a calculator on my website, mattpulson. Com, and you can use that to calculate your financial Runway. If you'd like to access that, there is a link to it in the description, so go ahead and check that out. Thank you.
