Liz Weston: How to manage finances before, during, career break

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

Today, Clark, whose pronoun is s/he, believes the experience makes her a better advisor – especially since her career break didn’t go as originally planned.

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

Career breaks are extended and mostly unpaid leave of absence. Such breaks can be desirable and give you time to travel, get a degree, change careers, or start a business. Or they can be prompted by life events, such as B. caring for a child, caring for a family member, or dealing with an illness or burnout.

Whatever the reason, some planning can help you make the most of your break.

Save and budget conscientiously

CFP Henry Hoang of Irvine, California doesn’t think most people need it detailed budgets, as long as they save enough for their goals. But career breaks are the exception, he says. When your paychecks run out, you’re going to want enough savings to feed you. That starts with knowing exactly what you’re spending today and estimating how much you’ll spend during the break. Some costs could decrease, e.g. B. commuting or childcare. But you could also face new costs, including higher health insurance premiums, if your current coverage is employer-subsidized.

Once you’ve calculated how much you need to save, add a fudge factor of two or three months’ spending in case it’s taking longer than expected to get your next job, Hoang suggests. One of Hoang’s friends didn’t and ended up hijacking his 401(k) to pay the bills.

Speaking of retirement, longer sabbaticals could mean working past normal retirement age or needing to significantly increase your savings rate in order to retire on time. If you plan to take more than two years off, use a retirement calculator or consult a financial planner to see how it might affect your retirement plans, says Hoang.

Clark saved enough from a high-paying job to cover living expenses for two years and was able to extend this to three years after marriage. Her spouse paid the bills while Clark used the remaining savings to pay for college tuition and other expenses to maintain her financial planning credentials.

Clark says that careful tracking of expenses and thoughtful budgeting has not only helped ensure her savings last, but has also eased some of the stress Clark feels about not having a paycheck.

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

MAKE A PLAN FOR YOUR TIME

You may feel like you need a break from strict schedules, but not having a plan can waste that precious time you have prepared and saved.

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 parenting responsibilities, and he never took time to explore other jobs, Hoang says. Eventually, when his savings ran out, he returned to the same field.

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

The details of your plan will depend on your career breaks, but you should consider scheduling a lunch with a professional colleague about every month to 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, such as: B. Meeting with a careers advisor and determining what training or certifications you need.

CONSIDER ALTERNATIVES

A longer career break may not be possible. You may have too much debt, too many bills, or too many people dependent on you to go months or years without a paycheck. Even if you have the savings, you might be understandably wary of leaving the job you have with no one else lining up.

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

Some employers offer paid sabbaticals, while others give unpaid leave to workers who need a break. You may be entitled to up to 12 weeks of unpaid, job-protected leave under the federal Family and Medical Leave Act if you have a newborn, adopt or care for a child, have a serious medical condition, or are caring for an immediate family member such as a child, spouse or Parent with a serious medical condition.

Given the tight job market, your employer may be willing to adjust your workload, transfer you to a less responsible job, or reduce your hours. That 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 website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and the author of Your Credit Score. E-mail: lweston@nerdwallet.com. Twitter: @lizweston.

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