A lot of people have asked me how I’ve been able to finance my career break and take so much time off without working. So far it’s been a year and a half without a paycheck.
While I’m not going to provide specifics in terms of numbers, financial responsibility has been the most important part of how I have been able to support my creative career detour.
So how do you get to the point where you can take time off from work and be the independent adventurer you’ve always wanted to be?
These are some of the things that have worked for me – a mix of actions and mindset.
To give you some background, I’ve been working in executive recruiting for about 18 years, with a few roles prior to that. I’ve had time to earn, save and spend. Some of the things that are working for me may not apply to your situation, but no matter where you are in your path, having a clear understanding of your finances is a good thing.
I am not a financial advisor and not giving specific financial advice, just sharing what has been working for me and what I’ve been learning.
#1 – Plan ahead
How much are you currently spending? What does it cost to keep you and your household running?
I did a deep dive in terms of my budget and I looked at what exactly I was spending my money on each month. This exercise is not only important to understand how much you will need, but also sheds light on where your money is going. Gulp.
I did an analysis over a four-month period. I reviewed my credit card statements, monthly bills, subscriptions, memberships, car payments, insurance – everything. I got an average of what I was spending monthly and added 10% for good measure. I then, multiplied that by 12 and figured that would be enough for at least one year.
Not sure exactly how long I’d be detouring – at least 3 to 6 months – I figured a year’s worth of savings would be comfortable. Turns out it stretched even further!
Now this figure doesn’t have to be in cash that is immediately accessible, but it should also not be your 401k or other retirement accounts. Those are for later!
This is also a great time to cut out any excess monthly expenses.
- Any memberships you can say goodbye to? I cut out my beloved spa membership. It was a pure luxury that helped me de-stress – but with no work, I’m less stressed!
- How about recurring subscriptions? Monthly clothing, makeup or gadget boxes? Later.
- Cable TV, satellite radio or other monthly entertainment? I bet there is something you can cut out.
Extra perk – You may spend less when you’re not working.
If you do decide to take a break from your corporate life, chances are you will be spending less money than you did while you were working. I no longer pay $130 in gas a week to commute and my dry cleaning bill is non-existent. Bonus! So your monthly average will likely be less than you think.
#2 – Cut credit card debt
Are those credit card bills out of control? Do you pay for everything on a credit card but not pay off the balance at the end of the month? That practice can be haunting and it’s difficult to escape. Those high interest rates just seem to keep adding up, lurking in every corner.
How I manage my credit cards –
I have a Chase Sapphire Preferred credit card I use regularly to earn points with every purchase and a Visa card from my credit union as a back up.
I typically put all purchases over $20 on the Chase card and then pay it off every month. Anything under $20 I pay in cash or with a debit card. Sometimes if I make larger purchases like plane tickets or a computer, it may take a bit longer to pay it off in full, but I always have a plan.
If you’re going to be taking some time off, do yourself a favor and pay off any credit card debt before hand. You may need to use that line of credit when you’re not earning income and it may take longer to pay off.
Start your detour off with a big fat “0” credit card balance!
Tip: if you need to open a new credit card account or take out any other type of loan (I took out a HELOC for home renovations), make sure you do it before you quit your job. Remember, it will be more difficult to qualify for any line of credit or loan without any regular income.
#3 – Live within your means
(aka – Do not spend more than you earn!)
I can’t stress this enough. This is not just a way to save and finance your career break, but a way of life.
It’s amazing how many people don’t grasp this basic concept.
It happens all too frequently, especially in business environments where people are frequently and unintentionally comparing themselves to one anther. The temptation of owning expensive things builds up and you begin to doubt yourself…
“We just did the most amazing kitchen renovation! New quartz counter tops, huge island, wine fridge and a steam oven!” – Pressure is on and you don’t even know what a steam oven is.
OR
“I just got a new Tesla!” – Crap. Your economical Honda Accord is certainly no head turner. You’d look much better in a Tesla.
Whether it’s designer shoes, expensive dinners, new cars or a huge mortgage… if you are continuously rearranging your finances to afford them or are always worrying about how you are going to pay for your lifestyle, then perhaps it’s time to put on the spending breaks. With the exception of potential equity in a home, none of these things will increase in value any time soon. They are just money spent. Gone. Poof.
It’s simple – live within your means. You can manage through life without that new shiny object or at least until your finances are more accommodating. Your Honda Accord will thank you.
For more guidance on the concepts of wealth accumulation and behaviors to live by, I highly recommend checking out Thomas J. Stanley’s book The Millionaire Next Door.
#4 – Think twice before making a purchase
I did a lot of travelling when I was in my 20s with limited funds. I didn’t need a lot and I lived frugally. It wasn’t until I started making more money that I began to get tempted.
The old saying is painfully true – the more you make, the more you spend.
As I progressed in my career, I started spending a heck of a lot more money. If I wanted something, I bought it. I especially liked to go out for nice meals since I was never in the mood to cook when I got home. There were a lot of expensive dinners out that were fun, but now that I think about it, kind of a waste of money.
Is that second $18 craft cocktail totally necessary? Or the $150 per person dinner for two? Perhaps not. Maybe it would be more fun to get a bunch of tacos and a six-pack. Think about it.
Tips –
- No more late boozy nights Internet shopping and steer clear of big box stores that sell cheap crap.
- Buying stuff just because it’s on sale or “only ten dollars” is a terrible habit. That shit adds up and has no value.
- Eat healthfully – stick to the outer aisles of the store and up your veggies. Cook more meals at home.
- Take ownership of your impulses. Again, think twice before making a purchase!
Then…think about the additional free time you’ll have since you’re not frivolously spending money!
#5 – Use it or lose it!
I really didn’t buy much last year; I just didn’t need anything. I made a point of using what I had – my office attire of skirts and heels had turned into jeans and hoodies – so spending on new clothes came to a grinding halt.
I got rid of a ton of stuff and was able to make some extra cash along the way. One of the goals I had shared in an earlier post was to get rid of at least half of my things and be more purposeful with my possessions
We had booths at the flea market, did a few garage sales, donated stuff to Hospice and the Salvation Army, and sold stuff on eBay, Nextdoor, etc. Plus, every few weeks I put a big box of stuff out on the sidewalk in front of my house and people just take it. It feels great!
Same goes for extra space in your home. I have a spare bedroom and bathroom that I turned into an Airbnb. Not only am I meeting incredibly interesting people from all over the world, I’m earning a little extra cash while doing so.
And when I needed a new end table for my Airbnb room, guess where I found it? Yep, on the sidewalk. For free. With some sanding and two coats of fresh paint it looks fantastic. Plus, it’s now one of a kind.
Don’t get trapped by your stuff.
If you don’t use it, lose it. There are all kinds of tips out there to help downsize. Check out The Spruce post 32 Items In Your Home That You Can Get Rid of Right Now by Elizabeth Larkin for inspiration on things you can let go of today.
Gain a little extra cash and a lot more peace of mind.
#6 – Put your money to work
And don’t put it all in one basket. That basket gets dropped and you’re f***ed.
I have the benefit of having a mom who worked for two incredibly sharp investment advisors and she instilled the saving and investing mindset in me.
I own my home, have cash in my savings, a nice retirement fund, no debt and have been buying stocks for a while. I’m by no means free from ever having to work again, but good habits early on have helped get me to this point.
My mom’s shrewd habits enabled her and my dad to both retire in their early 50s while most of their friends worked for another 20 years.
Like Mr. Buffet, she was keen on compound interest. Check Jeremy C. Miller’s MarketWatch opinion piece “This Warren Buffett rule can work wonders on your portfolio” from May 16, 2016 for a deeper dive into this concept.
When my Great Aunt moved in with us in her 80s and we cleaned out her home in San Francisco, we found tens of thousands of dollars socked away under sofa cushions and coffee tins throughout the house. Just sitting there, doing nothing. No compound interest for her; she didn’t trust banks. As a child she lost her home in the 1906 earthquake and fire, then lived through the Great Depression in her 20s.
Best keep all the money in the mattress for quick access.
It’s okay to keep a little cash on hand, but don’t do what my aunt did. The sofa is for sitting; money is for making more money.
Your money can make money, no matter how little you have. For example:
- If you started with $1,000 and added $100 a month for 30 years earning 5% annually, you’d have $84,048.56.
- If you bumped the monthly savings up to $125 a month, you’d have $103,980.21.
- That’s another $20,000! How cool is that?
Fun tool – Play around with the Investor.gov compound interest calculator to see for yourself.
Now today you’d be hard pressed to earn more than 2% in a savings account, but this gives you the idea. More incentive to find a higher yield!
Mix up your portfolio as well – stocks, cash, ETFs, 401K, Roth IRAs, mutual funds, bonds, real estate – there are lots of ways to have your money make more money.
#7 – Know where your money is and what it’s doing!
I check the stock market several times a day as well as my Personal Capital account where I have visibility into all of my financial assets.
I’ll be the first to admit I knew very little about buying stocks when I began buying them. Now I know enough just enough to be dangerous and have some fun, and I continue to learn.
It is so easy to buy stocks now with Schwab, E*TRADE and other online brokerages. Trades are usually between $4.95-$6.95 depending which platform you use – much less than the $12.95 it cost when I first started.
While I’m more of a buy-and-hold investor – I buy stocks to hold onto them for the long haul with expectations they will increase in value – sometimes I will sell high to make a profit and buy more, or cut loose consistent underperformers.
A surprise bonus…
Last year the market had a few nice upticks and I noticed one morning it had gone up considerably. So much so, I decided to cash out some earnings and pay off my car. I had a fairly new car and was dreading those $650/month payments without a paycheck, so I just bought it. Problem solved.
That took a lot of worry off my mind and eliminated the additional interest I was paying on the loan.
And, at the end of last year, including the stocks I sold, I was still up from where I started in January. A year later I couldn’t be happier with that decision I made. Owning my car feels great and eliminating that monthly payment has helped me stay on my detour longer.
I’m not saying you can time the market, but just be smart about it. I think that’s where a lot of people get into trouble; they simply aren’t smart with their money.
They spend too much, they don’t think twice about what they are buying, and they are constantly in want mode but never satisfied.
That’s not a very fun place to be.
I can live pretty simply and I’ve always gotten a lot of joy out of it. I am also not married and I don’t have children. For those who have children it could be more difficult to take time off, but it’s definitely not impossible, especially if you are currently making a sizable salary.
So, to wrap up –
While this is high-level info, there are plenty of resources on the web and in books to get you on the path to a better financial future and one that will allow you to take some time off to focus on other areas of your life. Also, don’t forget to ask those in your network how they are doing it – most people enjoy chatting about personal finance.
The most important lesson for me has been maintaining the right mindset.
Be clear on your goals, stay focused and don’t get swayed by the over-spenders. Financing a career break is possible. You can do it!