Liz Weston: How to handle finances before, during the career hiatus

In 2016, Seattle’s Jamie Clark was a software engineer planning to take a year off work to finish a master’s degree in computational linguistics. One year turned into three and a career change in financial planning.

Nowadays, Clark, whose pronouns are they/they, believes the experience makes them a better advisor, particularly as their career hiatus didn’t turn out as originally planned.

“Part of our job as financial planners is to help people be prepared,” says Clark, now a certified financial planner who recently launched her own company, Ruby Pebble Financial Planning. “And I want to help people build that flexibility.”

Career breaks are extended and usually unpaid time off work. Such breaks can be ambitious: giving yourself time to travel, earn a degree, change careers, or start a business. Or they may be prompted by life events, such as caring for a baby, breastfeeding a family member, or dealing with an illness or breakdown.

Whatever the cause, a little planning can help you make the most of your vacation.

SAVE MONEY AND BUDGET DILIGENTLY

CFP Henry Hoang of Irvine, California, doesn’t believe most people need detailed budgets, as long as they’re saving adequately for their goals. But career breaks are an exception, he says. When your paychecks stall, you’ll want to have enough savings to support you. That starts with knowing exactly what you’re spending today and estimating what your expenses will be during your break. Some costs may decrease, such as commuting or child care. But you may also have new costs, including higher health insurance premiums if your current coverage is employer-subsidized.

Once you calculate how much you need to save, consider adding a fudge factor of two to three months of expenses in case it’s taking longer than expected to land your next job, suggests Hoang. One of Hoang’s friends didn’t and ended up breaking into his 401(k) to pay the bills.

And speaking of retirement: Extended breaks could mean you’ll have to work beyond the normal retirement age or significantly increase your savings rate to retire on time. If you plan to take more than two years off, use a retirement calculator or consult with a financial planner to see how that might affect your retirement plans, Hoang says.

Clark saved enough from a well-paying job to cover living expenses for two years, and was able to stretch that to three years after getting married. Their spouse paid the bills while Clark used the remaining savings to pay tuition and other costs to obtain his financial planning credentials.

Clark says careful expense tracking and a thoughtful budget not only helped make their savings last, but also eased some of Clark’s stress without a paycheck.

“There are always surprises, but it’s good to try to minimize them, or at least minimize the impact on your finances,” says Clark.

MAKE A PLAN FOR YOUR TIME

You may feel like you need a break from rigid schedules, but not having a plan means you could be wasting this precious time you’ve been preparing and saving up for.

Hoang has another cautionary tale from a client who began his hiatus with a strong desire to change careers and spend more time with his young children. His days quickly filled with parental duties and she never had time to explore other jobs, says Hoang. When his savings ran out, he ended up going back to his own field.

“Having clarity about what you really want out of this career hiatus could make a huge difference in the overall experience,” says Hoang.

The details of your plan will depend on your career break goals, but consider scheduling lunch with a fellow professional every month or so to maintain your network and stay abreast of developments in your field. If you’re considering a career change, set a timeline for when you’ll take certain steps, like meeting with a career counselor and determining what education or certifications you’ll need.

CONSIDER THE ALTERNATIVES

An extended career break may not be possible. You may have too much debt, too many bills, or too many people depending on you to go months or years without a paycheck. Even if you have the savings, you might understandably be wary of leaving the job you have without another one being ready.

But that doesn’t necessarily mean you’re stuck.

Some employers offer paid sabbaticals, while others provide unpaid leave for workers who need a break. You may be eligible for up to 12 weeks of unpaid, job-protected leave under the Federal Family and Medical Leave Act if you have a newborn, adopt or foster a child, suffer from a serious health condition, or are caring for a close relative such as a child, spouse, or parent with a serious health condition.

Given the tight job market, your employer may be willing to adjust your workload, move you to a job with less responsibility, or reduce your hours. This could free up the time and energy you need to focus on what’s important to you and what you want next in your life.

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This column was provided to the Associated Press by personal finance site NerdWallet. Liz Weston is a columnist for NerdWallet, a certified financial planner and author of “Your Credit Score.” E-mail: lweston@nerdwallet.com. Twitter: @lizweston.

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