There are lots Personal Financial Management (PFM) apps on the market nowadays. These apps can help you to achieve saving goals, track spend, set budgets and provide real-time transaction alerts.
One feature we haven’t seen, and which we reckon would add great value, is the personal runway.
Runway is a financial management measure used by startups. It provides a very powerful (and sometimes scary) insight: how many days until there’s no more cash in the bank.
To work as a PFM feature, runway would have to be framed in terms of the pay cycle. In other words, how many days until there’s no more cash and will this happen before payday?
Runway is based on three data points:
- Payday dates
- Daily spend rate since payday
- Bank account balance
Daily spend rate is easy to calculate. Add up all your spend since payday and divide it by the number of days since payday. Example: you’ve spent £500 in the 10 days since payday, so your daily spend rate is £50. (500 / 10 = 50)
A good PFM app will be able to tell you what your daily spend rate is, although chances are this won’t be framed by your specific pay cycle but instead by monthly cycles. A really good app would also account for any bills that you still have to pay before pay day.
To determine your runway, simply divide your current bank balance by your daily spend rate. Example: your current bank balance is £800 and your daily spend rate is £60, so your runway is 13 days (800 / 60 =13 rounded down).
If your runway is big (more than the number of days to payday), then kudos to you! This means you’re projected to make a savings this pay cycle.
However, if your runway is short (less than the number of days to payday), then there needs to be a big red warning light. It’s a case of “Houston, we’ve got a problem!”
You need to reign in your spending. If you can’t do that, you need to find a way to fund the deficit until payday comes around,. This means either tapping into your savings or using a credit service.
Both these options carry a trade-off. Tapping into your savings impacts your savings (well duh). And using a credit service like overdrafts, payday loans and credit cards means interest charges.
There you go – we’ve pretty much written the spec for a PFM provider to develop a personal runway feature. Hopefully they’ll acknowledge us here at SteadyPay.