Sabbatical? Yes you can Afford it
How often have you read the story of someone who’s taken a sabbatical and quit their job to do something crazy — like backpack across Europe, scale a mountain, or write a book? And as you heard their stories about adventures in new lands, meeting new people, trying wonderful new cuisines, or rediscovering themselves, you have probably sighed and thought, “I wish I could do that.”?
For most people with a regular day job and familial responsibilities, a gap year — even a ‘sensible’ one like for a Master’s degree — sounds like a distant dream. But it does not have to be that way. As cliched as this sounds, nothing is impossible. If you can build wealth by investing just Rs.1000 every month, you can afford a gap year. All it takes is careful planning and some smart investments.
Here’s a step-by-step guide to help you prepare for your sabbatical.
#1 Make That Decision
A goal is a dream with a deadline; when ‘someday’ gets circled on a calendar in bright red ink. So, the first step towards a sabbatical is to decide that you’re actually going to do this. Here are some thing to clarify to yourself:
- WHAT is this break for? A Zindagi Na Milegi Dobara style break? A sabbatical to do your Master’s? Or time off to spend with your family?
- WHEN will you be taking this break — immediately or in a few years? The more time you have to plan and prepare, the better it will be.
- HOW LONG will this break be? A Master’s degree will take 1–2 years. Traveling could be for a few months or longer (cross-country bike trip, anyone?) This duration will determine how prepared you will need to be financially.
#2 Estimate Your Expenses
Once you have the answers to these questions, it’s time to move on to the next — and the most crucial — stage: planning your finances. Calculate the amount required to cover your expenses for the duration of the break — this is easier for something like your Master’s degree because you will have a tuition fee plus living expenses worked out already. But for something like traveling, you will need to actually think through your plan — where you are going, how you’re going to get there, and what sort of food and accommodation you’ll need. For instance, backpacking, staying in hostels or home stays, and making your own meals will be much cheaper than hotels and dining out. Try our holiday planner tool to figure out how to save up for your next vacation.
When you calculate expenses, make sure you consider the following:
- Will you be supporting a family while you are doing this?
- Will you have fixed expenses that you cannot get rid of? For instance, rent or a home/car EMI.
- Do you have medical/health insurance? If it’s currently company-provided, will it still cover you during your sabbatical?
- Will you be effecting any lifestyle changes (moving in with friends/parents, cutting back on eating out, selling a car/bike, etc) to minimize your expenses?
- Is anyone — your parents or partner — ready to support you financially during this time?
- Are you open to working part-time or freelance during your break?
#3 Start Building A Nest Egg
Now comes the crucial part — working towards creating enough money to finance your break. First, pay off outstanding bills, especially credit cards. If there’s a year-end bonus or other lumpsum coming in, use it to close off any major debts. This will leave you with a clean state to start with.
What most people do next is to put aside a part of their salary in a savings account or FD; but this is not an investment at all! Your money just sits there, garnering a measly interest, and over time, loses value. If you don’t consider yourself investment-savvy, we recommend two options.
An alternative to Savings/FD — Park your money safely in low risk mutual fund portfolios with no lock-in period. You could get DOUBLE the returns an FD will give you at the same levels of risk; plus, you are free to withdraw your funds anytime. Explore some options here.
Start an SIP — If your planned sabbatical is a few years away, start an SIP right away. This involves investing a certain amount systematically every month. We recommend investing in a balanced portfolio that gives you the best of higher returns from equity funds and lower risk from debt funds. The longer you stay invested, the better it is. And the icing on the cake? Gains are tax-free post one year!
Lumpsum investments — A referral or festival bonus, quarterly incentives, returns from previous investments… we often get lump sums of money over and above our monthly paycheck. If you are planning a sabbatical, don’t spend these indiscriminately! Use them either to pay off debt or invest them in mutual funds (short or long term, depending on when your break will be).
Here is an illustration to show you how a long term SIP can give you significantly higher returns than an FD, along with tax benefits.
Needless to say, the earlier you start investing and the more you put by now (even if that means letting go of some luxuries in the present), the more stress-free and enjoyable your break will be. All the best!