Taking a career break is so common these days. To break away from the past and to move on a different path, one needs time to think through, plan and prepare. Many young mothers take a break from work to raise a child; some take a break to begin an entrepreneurial venture; some decide to slow down and pursue something completely different. How does one align personal finances to support the break from work?
First, define the break as firmly as you can. Why you need the time off in the first place will determine that. If you plan to study for a competitive exam and cannot do it along with a full time job, give yourself a set number of attempts to make it. If you plan to begin a business venture, define the period by which you hope to see profits. If you are switching jobs, define how long you will go without an income. Without the milestone, you run the danger of prolonging your break and getting adamant about something that isn’t working.
Second, a break needs a corpus to support it. But that need not always be large. If you have large and critical financial goals, you want to provide for those. A large financial goal is one that needs funding that is bigger than your regular and routine income; it is critical if it must be funded. You can drop the annual holiday, but might still want to send your child to a school of choice. A goal can be funded by an asset, as long as you are able and willing to liquidate it. Sell that third flat in the suburbs but don’t liquidate all assets into cash sloshing in the bank.
Third, you don’t have to replace your current income when you are on a break. Your income typically funds your mandatory and discretionary expenses and leaves a surplus for saving. You don’t need all of it when you are on a break. You want to cover the mandatory expense for sure. Keep a smaller amount for discretionary spending and give up the saving routine. You can go back to it all when you begin a new career. Estimate that monthly amount that will keep you comfortable and not anxious about routine expenses. It is adequate to provide for that.
Fourth, if your break involves new spends, make sure you have included them in your estimates. A friend wanted to pursue a career in modeling and gave up her full time bank job. She was soon exasperated with the amount of money she had to spend on clothes, accessories, beauty treatments and gym routines. Cutting corners hurt her prospects and spending too much left her anxious. New business creators …….