How would you budget for a career break?

Someone going through a break recently asked me this.

The first time I took a career break, I was entirely unprepared for its financial and emotional dimensions. Having taken more than one since, and now being a financial advisor, here are a few things I wish I had understood earlier.

A. Your savings need to be accessible.

Hopefully, by the time you are considering the break, you have a savings cushion to draw upon for expenses.

When I took my first break, I didn’t realise the need for my savings to be accessible and liquid. I had (a little foolishly, in retrospect) included a house in my savings budget. Anyone who has dealt with real estate knows it’s far from a liquid investment, and often takes months or more to unwind if needed. So having sufficient liquid (or cash-able) savings is essential.

On the other hand, I’ve seen folks keep a lot in bank cash deposits, or fixed deposits. Works well for a short break, but for anything more than a year, you are not sweating your money enough to cover inflationary cost increases.

B. Your expenses are less predictable than you think. And flexibility matters more.

Most of us eyeball-estimate our spends going into a break. Few realise how much is committed vs. flexible.

In my case, I was pleasantly surprised by how little I was spending when not commuting to a place of work, or eating out frequently, and even by the clothes I didn’t need to buy! But there were things I couldn’t stop paying for - housing, utilities, and the likes. Equally, since I had time to do other activities (travel, startup work, teaching etc., which I enjoyed) - I had to budget for additional spend on those.

C. Your runway is a moving target.

I had thought savings divided by the periodic spend would be my ballpark runway. True, but I didn’t realise how much variability can exist.

In the initial days of a career break, one tends to ‘stare’ at uncertainty. There are many unknowns. And unknown, unknowns. So all spend tends to be scrutinised. As days pass, one gets comfortable with the nature and pace of your spends, and your confidence with managing it increases.

And then, uncertain spends turn up. Maybe a health issue. Maybe a capital good that needs maintenance or replacement. Or an exciting travel that you suddenly find the urge to go on.

The point is not to forecast perfectly, but be ready for flexibility and periodically review.

D. The psychology of money - the dimension I hardly anticipated.

Most of us who are used to periodic salary credits, underestimate the emotional impact of it stopping. Call it a dopamine addition or whatever you like, but the withdrawal of regular incomes can ruffle even the calmest of minds. Even with sizeable savings, the absence of a predictable inflow can unsettle - and it does take a couple of cycles to get used to the new normal.

For those anticipating longer breaks, consider setting a periodic cash inflow to offset this. There are many ways of doing this today - rentals incomes, scheduled fund withdrawals (like SWPs), dividend-heavy / REIT portfolios, and the likes. It may not always be the most financial optimal scheme. But the emotional peace of mind from having predictable cash inflows is often more than the tax or yield you will lose.

Final thoughts.

In this age of complex careers and rapidly disrupting industries, more and more people are likely to encounter career breaks - whether to rejuvenate, to explore something new, or because circumstances nudged you towards new paths.

Planning for a career break is more than accumulating enough savings. It’s also about having accessible money, spending flexibly, periodic reviews along the way and managing the psychology of money.

(These are personal observations and views from experience, not personalised investment advice. Every situation is different, so tailor to your situation, and seek the advise of a professional investment advisor if needed.)