Whether it is taking time off to work for a charity, going back to school or travelling the world, preparing for a sabbatical is no different than planning for any other financial goal.
Just hoping won’t get the job done. What’s needed is to create a realistic approach with a financial planner and then showing the discipline to stick with it.
Start by asking yourself how much money are you going to need, then work backwards to figure out how long it will take to get there.
For those taking as much as a year away from work it’s not uncommon to start planning years in advance.
Crystal Wong, senior regional manager for financial planning with Toronto-Dominion Bank in Calgary, suggests approaching it like a diet — don’t make it too austere or you won’t stick with it.
While saving for a sabbatical might mean putting off buying new clothes, delaying upgrading to the latest electronic gadget and fewer dinners out, it doesn’t mean returning to a student diet of instant noodles.
“You don’t want to entirely deny yourself some of these luxuries or what we perceive as luxuries,” Ms. Wong said.
“You can’t just cut everything out of your diet that you love because then you’re entirely regretting all of your dieting decisions and that’s why diets never work.”
But for those who don’t already have a written budget, start by creating one, Ms. Wong advises.
“Once you’ve educated yourself as to where your funds are going, then you can take a look to see what can you stop spending your money on.”
For financial advisers, the task then is working with clients to decide the difference between needs and wants.
“Is there anything we can cut away from their current budget to reduce actual expenses on a monthly basis?”
There may also be ways to generate at least some income while off work. Those planning an extended trip may be able to rent or sublet to at least partially offset mortgage, rent and other costs housing costs.
Some workplaces offer provisions for taking time away and may hold a employee’s job whether he or she is taking time off for personal projects or upgrading their education.
However, that may not be an option for everyone and for some a plan to take time off will also need to include a budget to bridge the time needed to find a new job afterwards.
For those planning to return to their job, the ability to maintain health benefits while away should also be explored.
You may have to pay for the benefits yourself, but the upside may be worth the added cost to keep things like supplemental health and dental benefits through the time away.
Ms. Wong also notes that saving for retirement also shouldn’t be ignored.
“If you can it’s probably to your advantage to continue contributing to your pension as well as your benefits package and that amount will have to be built into your budget. That’s one of the expenses that won’t go away,” Ms. Wong said.
However, if you can’t or don’t want to continue to make contributions to an RRSP during time off work, your financial plan needs to reflect that and it may mean other changes such as not retiring as early as expected.
“It might be as simple as when you get back into your career and working that you need to save and keep that budget a little tighter for an extra couple of years to save a little more,” Ms. Wong said.
But it all begins with a plan.