As a sales manager, Rajesh has been doing well in office. Within a few years, he moved up the ranks. But now, he feels pursuing an MBA could give a leg-up to his career. He is planning to take a sabbatical to pursue a full-time degree in management.
Many people quit their jobs to pursue studies, develop a side business, do humanitarian work, attend to a personal project, or simply for their health. Whatever the reason, proper planning is crucial.
Brainstorm the idea with your partner and friends and solicit their opinion. Their queries and concerns could help you logically build a convincing game plan. While all sabbatical might not necessarily be for gaining monetary benefits, ensure it gives an enriching experience. There is a cost involved in taking a sabbatical. It might delay your long-term goals like that of buying a house or starting a family. If you are a freelancer, taking time off could mean potentially losing clients. So, weigh your options.
Calculate a baseline budget
Figure out your regular household expenses on items like food, rent and utilities. Arrive at a baseline monthly budget by including a portion of discretionary spends on travel and entertainment. This monthly amount multiplied by duration of sabbatical will be the amount required for running the household expenses. In addition, you might need money to pay for tuition fees and related expenses, if you are pursuing studies. Ensure you factor all the costs. As a buffer, add an additional 10%-20% to the baseline budget.
However, ensure that expenses are tight during the sabbatical stage. Since time might not be a constraint, one can plan for expenses better. Cut down on lifestyle expenses like leisure travel wherever possible.
If you are running debt– say personal or a car loan – repay it. EMIs on these loans will be an additional burden when you are not working. If you have a home loan, ensure you provide for its payment.
Start saving early
The above exercise will let you know if your current savings are enough. Otherwise, explore options to garner alternative sources of funding. For instance, for pursuing higher studies, you can seek scholarships or a bank loan. Study loans come with a moratorium period, letting you repay when you are back at work.
If you are still falling short of resources, consider postponing your sabbatical plan by a year or two. Financially prepare for it by building a separate fund that could be invested in debt-based funds.
Once you are on a sabbatical, automate monthly transfer from debt mutual funds to your savings account on paydays and limit your withdrawals.
Build an emergency fund
Bump up an emergency fund equivalent of six months expenses. Park the money in liquid and debt-based funds. A medical emergency or a major car repair wouldn’t throw your finances off-gear.
Get finances in order
If you are running debt– say personal or a car loan – repay it. EMIs on these loans will be an additional burden when you are not working. If you have a home loan, ensure you provide for its payment. May be your partner can financially chip-in. Buy adequate life and health insurance.
Commit to a start and end date
This is very important as it mentally prepares you for the journey and makes cost estimations easier. While the beginning could be your choice, the end date might not be. For instance, trying to join work immediately after education might not be possible. So, have a Plan ‘B’ in place and prepare for contingencies. Some discuss options with their employer to join back - giving themselves a cushion, just in case the job market tanks in the future.
In short, get your financial ducks in a row. Ensure expenses are tight by planning for expenses better and make it an enriching experience to last a lifetime.