Tips for Planning your Finances in Advance

Taking a long-term break from work? Plan Your Finances In Advance

30 Dec 2019
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Almost everyone has a moment where you sat at the computer wistfully dreaming of quitting the stressful routine and living a little. Modern life is busy, there’s a lot of responsibilities at work, family, friends and it’s easy to get caught in the cycle without pausing to think about your actual longer-term ambitions, but it is possible to escape, even for a short period of time without sacrificing your career. Now companies are more and more receptive to the business benefits of a career break.

Taking a break can give you a fresh perspective on your life and work, often while taking on new challenges, and experiencing new frontiers. It might be the right opportunity to do that volunteering project that’s been on your list for so long, gain experience in a new field, explore different cultures, and learn a new language. Time out from your job can be a golden opportunity at any age of life to revive your passion for work, assess how you’d like your career to progress or re-energize.

Having a proper plan for a break is one of the first things to do before leaving your job, assess the duration of your break considering how long you want it to be, also it is equally important to look into money management to check whether you have enough money to finance your expenses and an adequate insurance cover to protect you and your loved ones.

So, let’s take a look at the financial planning tips when taking a long term break.

Financial commitments

You need to manage your periodical financial commitments to build the desired compilation. By setting the timelines of your systematic investment plans closer to the date when you receive your salary. This will help you live according to the limited available funds. Once you’ve secured your finance for these commitments you can start securing funds for your sabbatical.

Set aside some money

When you receive your monthly income you can start saving some amount of money. You may consider monthly income plans or fixed deposits (FD) with monthly interest options, depending on your risk profile and time horizon. However, this may not be sufficient to meet all your expenses, this would certainly contribute to helping you manage individual expenses. Before making any investment decision, you can a financial adviser for other suggestions.

Get an insurance cover

Getting an insurance cover is a good way to financially secure you or your loved ones. You need to get an appropriate insurance cover which comprises health insurance and term insurance. In case of an injury or accident, you can finance your medical bills with the health insurance cover. You can also take disability insurance which covers your ability to earn. Sudden injury or illness can disrupt your lifestyle and future plans so getting yourself insured is a good option. You can check with a health insurance company that offers you the best facilities for insurance and get you yourself insured.

Calculate your expenses

A major step towards creating your financial plan for the break is to estimate your expenses. This would be rather easy if you know exactly what are you going to do on this career break if it’s a new activity you want to do or learn something new. Moreover, your living expenses are almost fixed. If you plan on taking a long break, your expenses will vary based on your choice of destination, travel, accommodation, and food.

Needless to say, if you are traveling as a solo backpacker, staying at hostels or BnBs and cooking your own meals, you will be able to lower your overall travel expenses and would cost you much less than the one with lavish hotel stays and dine-outs. Also, it is best to clear out your debts before going on a break to avoid any difficult situations.

Make the right investments

Planning your investments according to the duration of your break is a smart move to manage your money. If you plan on taking a break within three years, it is recommended that you start a monthly SIP in low-duration debt funds without any lock-in period or exit loads. Compared to holding the money in a savings account or in FD/RDs, you can get higher returns from these low-risk mutual funds with high liquidity. Getting started with a SIP helps you save money systematically every month. If you are going on a break of 5 or more years, you could opt for a SIP in Hybrid (Balanced) mutual funds instead of debt schemes.

Lump-sum investments such as referral or performance bonuses, returns from past investments and quarterly incentives could be of good use while planning for your career break. When the days get closer to your career break, make sure to spend these amounts wisely. You may use this bonus money to repay any pending short-term debts and invest the remaining in mutual funds.

Taking a break from your regular life is significant for your well-being. While a lot of us want it only a few make up their mind for it. If you had a thought about taking one in the future, some money management and investing for the break makes things a lot easier.

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