6 tips to help you budget for a career break

Review your monthly spending, cut down on unnecessary expenses and set up a dedicated savings account, experts say

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Colleen Attia was forced to take a career break in March 2018 when she suffered a spinal cord injury at her workplace in the US. To make matters worse, a doctor treating her accidentally cut her vocal cords, rendering her speechless for two years and seven months.

Facing multiple surgeries, Ms Attia resigned from her job and moved in with her elderly parents.

Although the American expat, who is currently working as a private teacher in the UAE, had a small emergency fund in place, it was not large enough to cover a three-year career break.

“I was on a very limited budget. I would go to food stands where farms would offer products at reduced prices,” Ms Attia, 32, says.

She used coupons, bought items from discount stores and took advantage of buy-one-get-one-free offers.

“Everything was very calculated. If I didn’t need it, I didn’t buy it,” says Ms Attia, who moved to the UAE in October 2020 to take up a teaching job.

She even worked as a driver for Uber and Lyft and as an Instacart Shopper when the Covid-19 pandemic struck to earn an income while she was still living in the US.

"These circumstances made me realise that when you are employed, break up the paycheque into three parts: meet your monthly bills, set aside some savings and dedicate some money for your enjoyment, such as travel," Ms Attia tells The National.

With the Covid-19 pandemic disrupting the lives of millions across the world, many people have re-assessed their career paths and opted to take a sabbatical for various reasons, such as mental or physical health issues or extended time out for stress and burnout.

Human resources consultant Thanj Kugananthan voluntarily took two career breaks, one of which was to set up her business, Visible HR.

Taking a career break is no different to starting a business, she says. People need to save 12 months’ of expenses before embarking on a sabbatical. This should cover mandatory expenses, in addition to discretionary spending.

"Go through your list of expenses with a fine-toothed comb and start cutting down on what is not a necessity. Learn to be savvier with your money," she tells The National.

The entrepreneur says most people are used to seeing a lump sum of money credited to their accounts every month, all of which is not needed to meet basic expenses.

“You have to develop a mindset of looking at money in a new perspective. You need to get comfortable being uncomfortable. Your bank balance won’t look the same it used to because you don’t have accumulating money,” she says.

It is also important to start saving or investing excess money in your bank account to prevent unnecessary spending.

“Sometimes, you tend to splurge on a shopping spree, luxury holiday or a staycation if you see a big bank balance. But if it’s not there, you can avoid such spending mistakes,” Ms Kugananthan says.

Taking a career break does not have to be difficult if you have a budget and a financial plan, experts say. Here are six tips on how to manage your finances if you are planning to take a sabbatical.

Assess your current financial situation

It is important for people to know their financial net worth. This is your total assets (cash, savings, investments, assets) minus the total amount you owe (credit card balance, personal loans, mortgages).

“When planning a career break, knowing how much cash you have in reserve is crucial. If you will not earn an income for a period of time, you need to understand how much cash you have available to live on,” Carol Glynn, founder of Conscious Finance Coaching, says.

She adds that those planning a career break must also decide the total value of assets they can sell to pay for their debt commitments or basic living expenses.

Know your monthly expenses

If you don't have a record of your expenditure, then this is the first exercise to carry out, Rupert Connor, a partner at Abacus Financial Consultants, says.

“Go through your bank and credit card statements to see where money is being spent. Once this is known, make some cuts to bring monthly expenditure down, but be realistic. The aim is to get your cost of living down dramatically and then stick to it,” Mr Connor adds.

If you don’t do this, you will have no idea how much your career break will cost you and what categories you can dial down during your break, Steve Cronin, founder of DeadSimpleSaving.com, says.

Review actual spend for the previous three to six months to get a true picture of your cost of living. “Categorise between what is a need [rent, food, fuel, electricity and debt repayments] and a want [eating out, shopping and holidays],” Ms Glynn adds.

Plan your expenses across categories

The most essential expenses to cover during a career break are housing, food, entertainment and children’s education.

Set a budget for each category and then an overall budget cap. Look at ways to reduce the total budget by 10 to 20 per cent, so you don’t add up the category expenses towards a ridiculously high number, Mr Cronin says.

“While calculating how much money is needed each month during your career break, also include annual costs such as car insurance, rent renewals and medical insurance,” Ms Glynn suggests.

People planning a career break must also take into account benefits provided by the employer, such as residence visa, medical insurance, annual flight ticket home and school fees. Include these costs in the budget for the period you will not be employed, Ms Glynn says.

“Taking a career break may affect your existing insurance arrangements, so check with your employer and the provider to see if any adjustments need to be made. For example, the private medical insurance offered by your employer may be put on hold, so personal arrangements might be required to be set up,” Mr Connor says.

“If you already have life insurance, then check with the provider to see how a career break and travelling will affect the policy, if at all.”

If people plan to travel during the career break, they must also include a realistic amount to spend on flights, accommodation and insurance, according to Ms Glynn.

Set up a dedicated savings account

Open a savings account dedicated to building up the funds for your career break. Don’t keep it in your current account otherwise you might spend it, Mr Cronin warns.

Aim to have at least a year’s worth of normal expenses in the savings account. This is separate from the emergency fund, which should cover three to six months’ expenses. It should not be used even during the career break, if possible, Mr Connor says.

“It is prudent to expect the unexpected, so add a 10 to 20 per cent buffer for any unforeseen expenses. A second or part-time job could also be an option to raise extra funds,” he suggests.

Calculate how long money reserves will last

If you have enough money to cover this period without an income, then you can afford your career break, in theory.

“It is a good idea to budget for longer than you plan to take. What if you cannot find a new role after six months have passed? Will you have enough cash left over to cover additional unplanned months without an income?” Ms Glynn says.

She adds that if people currently do not have enough money to cover their career break, they should consider spending more time saving or figure out ways to live more cheaply during the sabbatical.

Plan where money will come from

If you plan to use potentially all or a large portion of your savings during your career break, it is prudent to weigh up the cost of the sabbatical versus the benefits you aim to gain, Ms Glynn says.

“Ideally, having a job to return to is the best and most financially secure way to approach a career break. Once you return to work, a priority financial goal would be to replenish your savings to ensure you have enough to cover at least three months’ living expenses,” she adds.

Knowing your intention for the career break will also impact budgeting, according to Mr Cronin. “For instance, do you intend to travel or need to pay for training towards a new career? Or, if you have a partner, are they taking a break at the same time?”

If the intention of your career break is only to get away from the daily grind, then you can continue to work on some level from another country. You can work online and earn an income, Mr Connor says.