Thinking of Taking a Career Break? How to Prepare your Finances for What’s Next

I’ve written before about what economists are calling “The Great Resignation.” A recent Wall Street Journal article says, “Employers are seeing a wave of sabbaticals, leaves of absence and job departures this year in what’s been dubbed “The Great Resignation.” In July, 2.7% of U.S. workers left their jobs, according to the Bureau of Labor Statistics, near the highest level on record. Another 41% are considering leaving within the next year, according to the 2021 Microsoft Work Trend Index.”

This topic is particularly meaningful to me because I made my move in 2020. I left my fulltime job after planning for several years. My decision was based on age (I turned 62), financial considerations (I had the benefit of a pension that would provide financial freedom), and a clear vision for what I wanted in the next phase of my working life.

Whether you’re preparing to retire, take a sabbatical, or simply walk away from your career for a few years, here are some tips to ensure you’re prepared financially for the change.

First, assess your current situation and your financial needs. Base your financial assumptions on your current take home pay, not your gross salary. If you’re working less or not at all, your future taxable income will be very different from your current situation. Work out a monthly budget from a zero basis, by estimating costs for the necessities: rent or mortgage, food utilities, insurance, transportation, etc. You’ll realize considerable savings when you eliminate the costs of working and commuting, and you may find other ways to save as well.

Once you have the basics covered, take a look at any extras you can eliminate or reduce. Can you consolidate your streaming services, cook more at home, or work out outdoors rather than at the gym? Don’t eliminate all fun from your budget; be sure to add in the cost of a few nights out a month with your partner or friends.

Health insurance and healthcare expenses are two of the most important pillars of your financial plan, even if you’re young and healthy right now. The Affordable Care Act plans allow you to access insurance that’s not tethered to your employment, but you should also investigate boutique wellness plans that charge a flat fee per month for your care. Plans are generally affordable (one I investigated near me in Jacksonville charges about $129 a month) and cover the basics: annual checkups, chronic condition and prescription management (but not the cost of the medication), sick visits when needed, and routine office procedures and lab work.

Now that you know how much you need to live comfortably, develop a plan for saving. Financial advisors recommend that everyone have at least six months of living expenses saved for unexpected loss of income and emergencies: getting laid off or getting sick or injured and being unable to work.

Meg Bartelt, the financial planner featured in the Wall Street Journal article, recommends starting a separate investment or savings account for your plan. “Ms. Bartelt’s clients started saving for career breaks with a conservative investment fund they label “The Opportunity Fund,” basically a pot of money to finance their next move.

An opportunity fund should always have a goal, Ms. Bartelt says. Earmarking this money for a new business venture, a career pivot or “time to simply stare at the wall with a latté” can help imbue the saving period with a sense of purpose, and not panic.” Earmarking the money for a shorter-term goal than retirement also gives you permission to spend the money when you’re ready for your break without feeling like you’re risking your retirement funding.

Your financial plan will include how much you have to save and how long it will take for you to have enough to fund your break. The Wal Street Journal advice is to “work more, then less.” Taking on extra work, developing side gigs, or finding a way to make passive income from an asset (such as rental property) will help you achieve your goal more quickly.

Having a vision for your future will also make living within your present reality more bearable. Take it from someone on the other side of her working life – it’s worth the time, energy, and sacrifice you put in now.

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