Personal Burn Rate

Burn rate is the pace at which a company spends money.



Let's say a startup has $1M in the bank. If they're spending $100k/month, then their burn rate is $100k/month. This also means that they have ten months left until they run out of money, aka ten months of runway.



The burn rate is usually categorized as being low or high, neither being more correct (or incorrect) than the other, as it is purely contextual.



As you might imagine, a low burn rate means you're spending less, and a high burn rate means you're spending more of the money you have in the bank.



In a startup context, money is usually spent (or burned) on things like employees salaries, office space, marketing/ads, a cool new ping pong table, etc.



In a more personal context, money is usually spent (or burned) on things like subscriptions, rent, car payments, health insurance, student loans, etc.



If you're a young person with a ton of bills, loans, subscriptions, and side projects, I'd say you have a high personal burn rate. Partly because of how much money and time is being spent but more-so because of your lack of freedom.



A low personal burn rate equals minimum commitments and fewer constraints, which lead to optionality and flexibility.



Let's say your dream job pops up, but it's across the country and pays more (or less) than what you're currently making. If you maintain a low personal burn rate, you should be fine making the jump and going for the opportunity. If you have a high personal burn rate this will be much harder for you to do.



Published by DeWayne Roy (wayne) 4 weeks ago on Friday the 28th of June 2019.

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