Are you planning a career break and wondering how to finance it appropriately?
Whether you’re looking to take some time out to travel the world, change your profession, start a family, or care for a parent or spouse, there are some steps you can take to financially prepare for your time away from work.
Here are six tips to help you to prepare for and finance your career break effectively.
1. Plan for it
Preparing ahead of time will always put you in the best position, especially when it comes to financial planning. If you’re looking to have a career break, make sure you spend some time in advance planning what you’re hoping to achieve and how you are going to fund this – rather than waiting until you have left your job or career. Take a look at your budget and work out how much money you will need to live on based on the length of time you’re going to be away from work. Be honest with yourself about your spending habits as this is the best way to ensure you set aside enough.
2. Factor in new costs
When you’re working out your budget for a career break it’s important to factor in spending for any new expenses, as well as your current ones. This is especially important if you’re planning to do something completely new like travelling the world or having children as both these can significantly add to your expenditure.
3. For long-term breaks, look at investing and drawing income
If you’re looking to take a career break that will last five years or longer, it would be valuable to look into investing as a means of financing your time away from a regular salary. Investment income can work to support you financially when you take longer term breaks away from the workplace. Setting up a combination of an ISA and General Investment Account and drawing income to fund this could potentially be a good option. Speaking to a financial adviser can help to guide you on what may work best for your financial situation.
4. For short-term breaks, cash is king
If you’re only looking at taking a short-term career break, cash savings are likely to be the better option. This means you won’t be exposed to short term market volatility which are a consideration when investing the funds. For financing short-term career breaks, you can use current accounts, premium bonds or fixed interest accounts for your cash.
5. Keep emergency cash
Life is unpredictable and you might need to take a career break unexpectedly and at short notice. To prepare for this, always keeping some emergency cash should be an important part of your financial plan and can be helpful when an unplanned career break occurs. If you can save between three and 12 months’ worth of expenditure, depending on the stability of your circumstances, that can give you a healthy cash pot to dip into if necessary. If you are taking a longer planned career break and drawing an income from your investments, a buffer of one-to-three years’ worth of cash can be kept in tandem with your investments and used if markets are underperforming.
6. Take out insurance
Also in the case of unplanned career breaks, insurance policies can help protect you and your family in the unfortunate event of illness or inability to work and earn an income. It is sensible to consider taking out insurance policies such as income protection and critical illness cover. Life cover could also help to look after your family financially should they need time out in the event your passing.
Making it a success
Thorough financial preparation is the best way to ensure you have the funds to make a career break a success – whether it’s planned or not
Enlisting the support of a financial adviser ahead of time can be hugely beneficial in helping you to finance a career break efficiently and sensibly, and according to your needs. To speak to one of our financial advisers, please get in contact today.