Here Are 5 Steps You Should Take When Budgeting for a Career Break
Not everyone’s career path is a 40+ year marathon working full time until you can finally come up for air in your golden years.
Sometimes you need a little break along the way.
Taking time away from the workforce — whether it’s to travel, take care of loved ones, learn a new skill or whatever — can be a beneficial thing. But money — or the lack thereof — is what stops many people from even considering it.
With some significant planning and budgeting, however, it’s possible to make your career break dreams a reality. Here are five steps you should take when budgeting for a career break.
5 Steps for Career Break Budgeting
1. Think About What Your Career Break Will Look Like
People take career breaks for a number of reasons. Take some time to reflect on why you are planning time away from the workforce and what you intend to do.
When thinking about what your new day-to-day will look like, try to get as detailed as possible. Hone in on aspects that will affect you financially.
How long will your break last? When would you like it to start? Will you be staying at home or traveling the world? What adventures would you like to experience?
While it’s nice to dream about your best life ever, you’ve got to be practical too. Ranking what you want to do with your newfound free time will be helpful if you have to cut your list down to fit what you can afford.
2. Explore What Your Costs Will Be During Your Break
After you’ve fantasized what your work break will look like, it’s time to focus on the numbers. You’ve got to know what your expenses will be in order to determine whether your plans are realistic.
If you don’t already budget your income and track your expenses, now’s the time to start. Your budget will give you a good idea of how much you spend on essentials and where you can cut costs as you save up for leave.
Research all the additional costs you expect to incur during your break. If you’re taking extended parental leave after the birth of a child, you’ll be dealing with a ton of new baby-related expenses. If you’re taking time off to travel, you’ve got to pay for transportation and lodging.
The length of your break will also be a big factor here. Obviously, the longer you’re away from the workforce, the more money you’ll need saved up.
3. Set Up a Sinking Fund to Cover Expenses on Your Break
If you haven’t heard the term “sinking fund,” that’s just personal-finance speak for a stash of savings that you regularly contribute to over time to break up a big expense.
Once you’ve estimated the overall expenses for your leave, divide that by how many months you have left to come up with your target monthly savings goal.
If you already have existing savings you want to use to fund your career break, that will cut down on how much you’ll need to put aside each month — just make sure you don’t touch your emergency fund!
Your emergency savings should only be used on an actual emergency — like if you get into a car accident or Fido needs to be rushed to the pet hospital. Being away from work won’t make you immune to emergencies, so do not plan to use your emergency fund to tide you through your break.
In fact, before you focus on building up your sinking fund, you ought to have adequate savings in an emergency fund first.
4. Explore Opportunities to Make Money On Your Break
If you’re able to make money while you’re away from work, you’ll be less financially burdened. You won’t have to save up as much or worry about burning through your entire savings.
The first income stream you should explore is your current job. Taking a career break doesn’t necessarily mean calling it quits where you work now.
Depending on what type of leave you’re taking, your job may be protected and you might be able to continue collecting your salary — or a percentage of your current pay.
The Family and Medical Leave Act (FMLA) provides eligible workers with up to 12 weeks of leave after the birth or adoption of a child, to deal with a serious health condition or to care for an ill or injured family member. While this type of leave is unpaid, you’ll continue to be covered under their workplace health insurance plan and there may be the possibility of coupling this leave with short-term disability pay.
President Joe Biden’s proposed coronavirus stimulus package includes extending the expired paid time off policies for sick workers and those needing to care for family members due to COVID-19.
Find out if your employer offers any other paid leave programs — whether that’s parental leave, unlimited PTO or sabbaticals. According to the Society for Human Resource Management’s 2019 Employee Benefits Survey, 27% of employers offered paid parental leave, 6% offered unlimited paid leave and 5% offered a paid sabbatical program.
Another 11% of employers surveyed offered an unpaid sabbatical program. While unpaid leave isn’t as ideal as paid leave, it gives you peace of mind that you’ll have a job to come back to after your break.
Other options to make money during your leave include picking up a side gig, bringing in passive income, renting out rooms (or your entire place) on Airbnb or selling your belongings.
If you need to pick up a little work while you’re on a career break, just make sure it doesn’t conflict with the reason you needed to take leave in the first place.
5. Develop a Re-Entry Plan
You need to plan for all aspects of your career break — including your transition back to the workforce.
Your budget needs to not only cover your expenses while you’re backpacking through Europe or nursing your elderly mother back to health. You’ve got to add a cushion for that period at the end where you’re actively seeking your next gig.
While data from the U.S. Bureau of Labor Statistics shows the average length of unemployment is about 23 weeks, how long it’ll take you to find new work will vary depending on your industry and the position you’re seeking.
Plan to keep up with contacts in your field and engage in relevant volunteer work or continued education while you’re away to improve your chances of quickly finding a new job.
If your savings run low toward the end of your leave, don’t brush off finding a bridge job — a temporary role to help you pay the bills while you search for better opportunities.
A career break should provide you with freedom to pursue something outside of your typical work life. You don’t want that freedom to drag you deeper into debt or put you in a worse financial position if you can avoid it.
Do your best to budget for more time than you’ll need so you can enjoy your career break stress free.
Nicole Dow is a senior writer at The Penny Hoarder.