Making Cents: Planning and affording a sabbatical from work

OVER the past year, I’ve received a lot of emails from people who are considering taking a break from work, and they want to know what they should be considering if they decide to follow through and take 3 months off or 6 months or even a year.
And there are many different reasons why they want to push the pause button with working. Some, just want to travel, others want to look at going back to college for a year, others want time off to look after an elderly parent, and some have been influenced by Covid, which has caused them to rethink their priorities and their career.
Lots of different reasons, and regardless of what they are, taking time away from work, is known as a sabbatical.
And let’s assume you have this idea or dream of taking time away from work, you’ll have a lot of questions swirling around in your head, with probably the main one being:

How much money will I need?
And this will depend on what you’re going to do and how long you’ll be doing it for.
You’ll also need to consider the reality of your situation. How long will your employer allow you to take off, and will your job be waiting for you when you return? And even if they allow you say 12 months off and your job will be waiting for you on your return, maybe from a financial perspective 12 months isn’t realistic, but 6 months might be doable.
And you’ll only ever know if you crunch the numbers first, so taking a sabbatical starts with having a clear idea of exactly how much it will cost.
Which is why your first and most important step is to put together a ballpark budget, and it’s okay if you’re not exactly sure when you first carry out this exercise, just getting down some numbers is a good starting point and working out what exactly you’ll need can follow but follow it must.

The three areas you need to review are:
1. Monthly bills that will continue during your sabbatical and that’s whether you’re travelling or staying at home.
2. One-off costs e.g. flights if travelling, college costs etc.
3. The daily cost of living while you travel or if you stay at home.
So, write down all those monthly costs that will continue while you’re off work, and are ones you can’t cancel, i.e. mortgage, or rent, utility bills, health insurance, loan repayments etc.
If you were travelling, it would be great if you could stop or at least put a pause on some of these recurring costs while you’re away, but there may be some costs where you have to continue to pay regardless of where you are in the world.
And you need to look at your daily costs whether you’re abroad or at home. Estimating what they are if you are travelling can be a tough one, so you’ll need to investigate this further and find out from others who’ve maybe travelled to where you are going, what it cost them. There are probably many resources on-line which might help you with this.
Then you need to add everything up. And if you were travelling for 3 months, the numbers might look something like this:
1. On-going monthly cost (at home) incurred whilst away for those 3 months.
Plus
2. Once off costs
Plus
3. Monthly costs (while travelling) for the 3 months you are away.
And this may end up like this:
(€1,200 x 3) + €2,500 + (€2,000 x 3) = €12,100.
You can apply the same logic if you were staying at home, but you just need to factor in the costs on points 1 and 2 above or maybe it will only apply to point 1.
And when you arrive at your number, I’d probably add on an extra 20% to it as a buffer for unforeseen expenses.
When you carry out this exercise you’ll know exactly what you’re up against and what you have to plan for. And knowing these numbers will give you that peace of mind you need because it will confirm you can take the sabbatical without worrying whether you’ll ever run out of money or not.
And if the number is higher than you thought, your options could be to put off the sabbatical until you have saved more, reduce the time you take off, look at ways of reducing outgoings at home i.e. interest only mortgage repayments or a moratorium on payment. It’s probably not a route I’d encourage anyone to choose but it might be a case of needs be. And if it is, just know what the impact this decision might have on your credit rating, what the repayments would become when moratorium comes to an end, the total interest paid back etc.
Or failing that, you could earn money while you are away or indeed if you were at home i.e. rent out your property or rent out a room, if you can that is. You can earn up to €1,167 each month under the rent a room scheme without having to pay any tax on this amount.
And there’s a very good rule of thumb when it comes to the length of time you should plan for a sabbatical, and it should be at least equal to or longer than the length of the sabbatical you take.

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So, if you’re planning a 6-month sabbatical, you’ll need at least 6 months to plan it.
But it might take a whole lot longer or shorter than that, it really will depend on your circumstances. You may have savings in place that will fund it immediately or you might need 24 months of saving to take a 3-month break, it really will come down to how much you need, how much you have and how much you can save each month.
Before I finish, it’s important to say, you don’t want to spend your entire cash reserves on your sabbatical. So any amounts saved, and any amounts taken from existing savings shouldn’t bring you below the minimum amount you need to hold for emergency purposes.
If your emergency fund number is €15,000 and you have €21,000 in savings, you can only use €6,000 towards the cost of your sabbatical. It might be tempting to dip into your emergency fund to maybe fast track your sabbatical, but I would encourage you not to.
And when saving for your sabbatical, I would recommend you open a separate account and put a name on it i.e. sabbatical fund. Keeping it separate from your other accounts is important because you can see your progress, and you’re not confusing the amount with any other accounts which may have other purposes.
And people are right to be nervous about the impact a sabbatical could have on their finances. They don’t want to look back and think from a financial perspective they weren’t ready and are now paying the price and will be playing catch up for some time. So it’s really important that you understand what you are doing and what your finances will look like when you return from your sabbatical.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie