Hello and welcome back to Be What Works. This week, we are looking at the third part about taking a career break, and we'll be focusing on financial planning and goal setting. If you have not had a chance to look at the previous two videos, have a look at Part One that looked at self-care and Part Two about pursuing your passions and hobbies. And before that, we had done an introductory video about taking a career break.
There are four main components to it:
1) know your money,
2) specifying your vision and goals,
3) allocating your money, and
4) prudent spending & diligent tracking.
1. KNOW YOUR MONEY
When planning to take a career break, one of the biggest factors to consider is finances. You need to start planning for this quite early on. When I started to think about mine, I got in touch with a financial consultant from NABO Capital to help me plan. However, before I could describe my lofty ambitions and dreams for him, he asked me if I knew what my money was being spent on. You see, one of the pitfalls of being in a regular salaried job is losing sight of many expenses that you deem as "small" but end up piling up.
Secondly, the challenge of thinking short-term, i.e., monthly, creeps in rather than longer-term. When I sat with him over two sessions, he had me write down every single expense and do a short and long-term spread from monthly to annually. For instance, a payment for an annual car insurance cover which I remitted once, he made me divide that by twelve. The idea was to have clarity on what my monthly expenses were as well as annually, what I was burning.
My biggest takeaway from that exercise was being able to identify areas where I could cut off some expenses or put a cap on others, e.g., "black tax" or charity contributions. The workbook he shared had three worksheets. The first one was to track my income and all my expenses, and at the bottom, my savings (being the difference) were computed. The second sheet was to compute my net worth, which was comparing my assets against liabilities, and the third sheet was a monthly budget that was informed by the second part of my vision and goals. (PS. Nabo featured my testimonial on their LinkedIn Page)
2. SPECIFYING YOUR VISION AND GOALS
After you know your money, you need to specify your financial vision and set some goals. This could range from acquiring an asset, doubling down on retirement savings, setting up an investment fund, paying off your debts, having an emergency fund, or in my case, putting aside money to take a career break. What is critical in this part is to set the vision or goal and then work backward to the steps and actions you will take to build toward it. Therefore, you must have a timeframe in mind and identify the appropriate financial instruments that will help you achieve your goals.
In my case, I needed to identify what I wanted to pursue during my career break and have a rough budget of what that would cost. My financial adviser and I discussed a portfolio that I would wish to set up and worked out the initial instalment and the monthly top-ups I would make for twelve months. Signing up was easy, and to remove myself from the monthly decision of putting aside the savings, I set up a standing order from my bank account to remit the funds every month into my investment portfolio. I received monthly statements from the fund managers and did not draw down on the interest earned. I was genuinely surprised when one day my financial adviser sought an appointment and asked what was next. Lo and behold, I had completed a year of saving up, and I now had a cushion to consider taking a break at the right time.
3. ALLOCATING YOUR MONEY
As you specify your goals and decide to take a career break, you need to decide on three scenarios about your income position:
1 – you will have zero income and wholly rely on your savings,
2 – you will do some gigs or side hustles during your break to bring in some small income, or
3 – you will draw down on interest generated from your investment savings.
This is important as it determines how you will fund your career break.
Next, on allocating your money, if you are planning to do some travel during a career break, consider keeping your money in a strong currency such as the US dollar, Euro, or Sterling pound. This tends to provide a bit of a buffer against currency depreciation. Consider opening a foreign currency fund and account if you will draw down on this during your travel.
The other part about allocating your money is to automate paying off recurring payments as much as possible. This could be your rent, house bills, or insurance payments. During a career break, as you are off a regular schedule, it can happen that you forget to meet your obligations.
4. PRUDENT SPENDING & DILIGENT TRACKING
In this last part, all I can say is that you have to be the Queen of Discounts and Mother Prudence. If you have planned your finances well and have started your career break, you are bound to become more aware and smarter about your money. In my experience, I have learned the art of booking flights, hotels, and local travel as early as possible to benefit from discounts. For flights, I have tapped into my air miles garnered from trips taken when I was working. In some cases, applying miles to a ticket has cut the ticket price in half. Not bad, huh?
On tracking, what has worked for me is to use a dedicated account and debit card during my career break activities, so I keep an eye on my expenses. Some grocery stores offer coupons and discounts to regular customers – take advantage of that. There are discounts as well for bulk purchases of household items – grab them. Any chance you have to be prudent about your money, use it.
Remember that eventually, your career break will come to an end when the time comes. Plan adequately how you will reorganize your finances once you are back to a higher income. If there is something during the break that you learned you can live without, keep it out. Beware of lifestyle creep, where disposable income is eaten up by rising expenses driven by wants rather than needs. Finally, a career break should not be a time to rack up debt. You have worked hard to take the time off. Make it easy on yourself to return to your career guilt-free and without the pressure of having to dig yourself out of a hole. So, take the time to plan well financially for your break and stick to the resources you have.
Thank you for tuning in and see you next time when we look at Part Four on Building your Personal Brand and Future Goals. This is Dr. Beth from Be What Works.
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