How To Calculate The Cost Of A Career Break

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Don’t let your career break dreams turn into a nightmare. 

Being financially prepared goes a long way in helping you become a confident career breaker. It starts with these questions.

1. How much do you normally spend?

2. What would you like to do during your career break?  How similar or different will it be from your current lifestyle?

3. How similar or different do you anticipate your career break expenses to be?

4. How long is your career break? 

Knowing the answers to those questions can help you to estimate how much you will need to set aside to have the career break that you want.

Now let’s get deeper into the questions.

1) How much do you normally spend?

In a previous article,  I introduced the expense sheet that is also found in the “Confident Career Breaker Guide”. You can adapt this expense tracker sheet to fit your particular lifestyle. 

I think it's more useful to calculate your expenses on an annual basis rather than a monthly one, especially if you envision your career break to last a year or more. However, the key objective is to develop an awareness about your spending patterns in the past. 

Honestly, your career break bestie here is a “ballpark number” kinda gal, so it is fine not to have exact figures, but do have a general idea of how much you need for your current lifestyle. 

If you face internal resistance in calculating how much you spend, I invite you to be curious about why that is. Might you have a negative association with money? In a previous article, I offered alternative metaphors for money that promote a more empowering relationship with it.

Based on your own lifestyle, complete the expense tracker sheet. Look through all your accounts where money is spent, and tally them up.

For some people, this process takes hours. For some, it takes weeks, or even longer. If you are doing this for the first time, release expectations around how fast it “should” be completed, or how precise it should be.

Done is better than perfect.

Let me share an example of a completed expense tracker sheet, based on the profile for our hypothetical example, Anna.

She's a debt-free single female who has been working for around 5 years since leaving school. She stays with her parents, so while she doesn't have household expenses, she gives her parents an allowance of $1000 per month. In terms of food, she eats out especially for workday lunches, during the days when she works from the office. She helps to chip in for household groceries. She is relatively healthy, so while she has insurance premiums to pay for, her medical expenses are quite low. She mostly takes public transport, but occasionally when she is late, she will take a private-hire vehicle for transport. She takes one or two short trips a year to a neighboring country because traveling is her main hobby. 

Tallying up her expenses, we can round up her annual expenses at $30000 a year for her current lifestyle.

After working for 5 years, she is looking to experience a change in tempo. Let’s see further down this article how it will affect her career break financial preparation.

But for now though, I want to turn the attention back to you. Let’s move on to the second question.

2. What would you like to do during your career break?  How similar or different will it be from your current lifestyle?

Let’s chat. When was the last time someone asked you what you want for yourself? If your answer is “never”, it’s time to ask it for yourself. 

What do you deeply desire for? What would you love to experience, or have in your life? 

Giving ourselves the permission to dream whole-heartedly is not easy. If you are like myself who is a female in an Asian society, we are badgered by societal norms, values, and expectations imposed upon us, and socialized to conform.

However, these whispers of our deepest desires matter. They are the guiding lights setting you on a path to a life that you dream of. They give focus and direction to a life that you would look forward to waking up to. 

For me, my dream is the ability to thrive savoring the simple, slow life, even in a fast-paced world.

So, never mind what others say about your dreams. What is important is:

Can you visualize your dream life? How can your career break be a reflection of that?

Take the time to create a vivid picture of your ideal career break. You can journal your response, or draw it out. 

Now let’s turn our attention back to Anna. She desires to take a 1-year career break. She wants to experience something different other than the short jaunts that she has been doing, and wants to take a 5-month trip across all the countries in Southeast Asia. She also hopes to make a career pivot, and is looking to embark on a 3-month Advanced Professional Certificate in UX Design. How will this affect her expenses? How much does she have to set aside financially?

This brings us to the next question.

3. How similar or different do you anticipate your career break expenses to be?

(p.s. It's more instructive to watch this part on Youtube for the step-by-step visuals to the changes in Anna's line items expenses)

Let’s see how Anna estimates her career break expenses.

Recall that she wants to travel more, and she estimates her travel expenses consisting of transport, activities, lodging and other miscellaneous expenses to cost an additional $19000 for the 5 months. This will fall under the ‘Hobbies’ line item.

The UX Design course she wanted to embark on costs $5000. This will fall under the “Self Improvement” line item. In total, she will need to spend an additional $24000.

Because she will be away from her home country for 5 months, some of her expenses will fall, or be unchanged. 

Expenses that will fall includes the items under categories such as food and local transportation. As she does not think she will be working for a year, the income taxes are zeroed out, although she will need to set aside money for paying the previous year's income tax. Some categories she kept unchanged, such as parent's allowance and insurance.

How does that affect her line item expenses in total?

As we can see from the changes, she will need to set aside $50000 (rounded up) for her career break year.

How do you use the same process for your own career break?

In order to estimate your career break expenses, use the completed expense tracker sheet you completed in Step 1 for cross-referencing. Using the knowledge of what your current expenses are as a baseline, you can better estimate how much your career break will cost, depending on how different your current lifestyle will be compared to when you go on a career break. 

Now, grab another copy of the expense tracker sheet. Cancel out the headline and title it Career Break Fund. Use your responses in Step 2 to gauge how much your career break will cost. This allows you, especially if you have some runway before embarking on a career break, to prepare that amount of resources so that you can go into that career break without financial anxiety. 

For example, if you envision traveling a lot during your career break, then obviously the expense under the Hobbies category will increase. Since you're not going to be home, your expenses under home renovation and improvements will naturally go down. Or if you are taking care of someone during your career break, you probably need to have a category under your groceries where special dietary foods, meal delivery services, and nutritional supplements feature more strongly.

In financially planning for your career break, you can make use of the three different categories, minimalist, moderate and maximalist. It is worth knowing what is the minimal amount that you can spend during your career break without feeling deprivation. On the other end of the spectrum, the maximalist column is for the dream, no-holds-barred  career break on steroids, that you might be envisioning. The moderate column is for career break expenses which fall somewhere in between minimalist and maximalist.

4) How long is your career break?

(a) Financing a short-term career break

In Step 3, you created your expense sheet for your career break based on how much you think it is going to cost.

Now, add in a buffer, based on how long you think it will take to re-enter the job market. 

Perhaps you estimated the activities that you want to do during your career break at $50,000 for a one-year duration. To be on the safe side, add in a contingency fund depending on how long it will take you to re-enter the job market and land a job in your industry.  For example, if I know that in the education industry, it takes around 6 months to find a job, I would add in 6 months worth of living expenses to that $50,000 a year which I estimated earlier.

Since I calculated my annual expenses at $30,000 a year in Step 1, I will need to prepare an additional $15000 since it is half (6 out of 12 months) of $30000 (my annual expenses). In total, I will need to stash away:

$50 000 + $15000 = $65 000

to fund a travel-focused career break and allocate time to find a job upon my return.

(b) Financing a long-term career break

How about if you want to finance a perpetual career break, so that you can take your time to find another job when you are absolutely enthusiastic and ready, without time pressure? The longer a career break is, the more you have to make room for “magic” and the unexpected, rather than a methodical execution of an X-month plan, so it is worth setting aside a financial buffer you are comfortable with.

While there are many different strategies to do this, I followed a framework based on the 4% Rule, derived from research popularly known as the Trinity Study. The 4% Rule is a guideline for determining how much money you can safely withdraw from your asset-based nest egg each year with a high likelihood that your savings will last for up to 30 years. 

Here are the basics. 

To finance a perpetual career break, you will need to accumulate assets, in a mix of equities and bonds, that are at least 25 times your annual spending.

Say you are Anna. Remember the number we arrived at in Step 1? Just multiply that by 25.

For example if your living expenses are $30k a year, then

$30 000 x 25 = $750 000

so that means that you need to have at least $750k in your nest egg. 

Don’t be put off by the numbers, because more likely, you are not aiming for a 30-year career break! 

While there is still so much to unpack, I hope that this article offers a starting point as to how to go about preparing yourself financially for your ideal career break. Here are the prompts again:

1. How much do you normally spend?

2. What would you like to do during your career break?  How similar or different will it be from your current lifestyle?

3. How similar or different do you anticipate your career break expenses to be?

4. How long is your career break?

Let me know if you have any questions about preparing yourself financially for your ideal career break, I'd love to help!