5 Financial Tips for Taking a Work Sabbatical

Finances
Woman speaks on her cellphone while walking through a busy airport: sabbatical

Some people take a "gap year" between high school and college to find themselves or see the world. But this time away is not limited to young adults. It's also possible to take a work sabbatical after entering the working world. According to a 2017 report by the Society for Human Resource Management, almost 17 percent of employers offer paid or unpaid work sabbaticals.

For many, a break may be to avoid burnout — or breathe new life into a career. A year (or more) away from work could give you the chance to travel, go back to school, develop a side business, focus on an important personal project or spend time with loved ones.

But taking a sabbatical leave midcareer brings its own set of money challenges and considerations. Here are some tips for staying financially stable while taking some time off.

1. Know Your Baseline Budget

First, figure out how much money you'll need to cover your basic expenses while on sabbatical. Will you make a drastic lifestyle change — such as being a digital nomad or traveling in an RV — or maintain your current lifestyle?

When creating a budget, factor in any new expenses and then work backward. Your budget should not only include everyday expenses, such as food, rent and utilities. Consider additional costs like health and life insurance, too.

To help prevent having to return to work earlier than anticipated, aim to keep your living expenses low. Speak with your family to identify areas where you could cut back. The less you need to spend during your sabbatical, the better your odds may be for staying financially stable.

2. Create an Emergency Fund

Beyond having a baseline budget, a robust rainy-day fund is essential. The general rule of thumb for emergency savings is to have anywhere from three to six months squirreled away. Of course, the right amount will depend on your unique situation.

It's wise to have money you could tap into for unexpected costs, such as urgent dental work or a costly auto repair, to help avoid debt. You also may need to access your emergency fund as you ease back into the workplace. Having a healthy financial cushion could help prevent any unnecessary stress and pressure during the transition.

3. Explore Available Resources

Depending on your reason for taking a work sabbatical, there may be resources to help fund your time off. If you're taking leave from work to pursue creative aspirations, you could look into artist's residencies. Many of these are offered by the National Parks Service, academic institutions and cultural organizations.

Are you going back to school? Sources of financial aid may come in the form of grants and scholarships from the schools at the state and federal level. Consider doing your research and looking into all forms of available funding to make sure you can afford to pursue higher education. This may help you avoid graduating with a massive debt burden.

If you're building a side business, you could be eligible for a small-business grant. There are grants based on location, industry and demographic. You can also get creative with financing for your new venture by looking into online crowdfunding platforms to help jump-start your project.

4. Come Up With a Plan B

You may need to go back to work a little earlier than expected or work part-time. If that's the case, drum up ways you can work part-time while maintaining a flexible schedule — and continuing to propel your interests forward.

If your focus is to open an online store, for example, consider taking on side jobs managing retail or small-business social media accounts. This could help you earn extra money — and bolster your skills in an industry you'd like to transition into.

5. Understand the True Costs

There can be financial trade-offs when taking a sabbatical that go beyond your budget. You may have to delay some of your long-term money goals. Not working for a period of time means you might not be able to make headway on big-ticket goals, such as buying a home, starting a family or retiring early.

It also means you won't have access to an employer-sponsored retirement plan or other benefits. You may consider opening an individual retirement account or personal insurance policies, such as critical illness or accidental death insurance, to help make up for this lack of coverage.

To help make the most of your sabbatical leave, you'll want to make sure your financial ducks are in a row. This, in turn, will help you feel more confident about taking a sabbatical from work.

IMPORTANT DISCLOSURES

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.

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