The Ultimate Guide To Budgeting For A Gap Year
Before reading this, I need you to come to terms with one thing. Sabbaticals are just pipe dreams unless you start to put action behind them. And that is what this post is about, putting actions behind your dreams. What is a big part of that action plan? The money that it’s going to take to make your dreams come true. As I mentioned in my sabbatical planning post, there are lots of different ways to budget for a gap year. Starting from the more simple “money forward” approach, and going to the more complex “activity forward” approach. By the end of this post, you will know which approach is best for you and how to build up a sabbatical budget from the ground up. It’s long, but it will be worth it.
The Money Forward Approach
When planning for a gap year a lot of people will budget using the money forward approach. This option is essentially asking yourself the question “How much money can I save?” The money forward approach centers around your potential savings, and you decide how to spend that savings later. This option is great for people who care more about time and trying to save for a sabbatical quickly.
Budget And Savings
Since your travel budget is the focus of this approach, you first have to figure out how much can save per month. To do this, you have to calculate “the gap.” Which is the gap between your income and your expenses. There are various ways to do this. You can use outside websites or software, like YNAB. Or you can do it the old fashioned way by looking at your bank statement.
Either way it’s important to know how much excess income you have every single month. And to look at your budget to see if there are ways to increase that excess income. To do this, you will need to take a hard look at your expenses and decide what can be eliminated. It may suck, I know, but think of it as prioritizing long term goals over (very) short term gains. Other than eliminating expenses, the other thing to help increase income is actually making more income. Which you can do through negotiating an increase in your pay at your current job, or picking up a side hustle.
Length of Time
Once you decide how much money you can save every month, you have to decide how long to save for. Do you save for a year? 6 months? 2 years? This is obviously going to depend on how quickly you want to be able to take your career break, and how quickly you can save the minimum amount you need to go. Can you save $1,000 a month and you need at least $10,000? Great, that’s 10 months before to can take off. If you are super burnt out, then maybe you only need to save for 3 or 4 months before taking a break from work. Only you can figure it out.
Where To Go and What To Do
The money forward approach to budgeting for a gap year asks this question last for a reason. Depending on how much you can save, and how long you want to save it for, will limit the different ways you can take a sabbatical. Can’t take it anymore and need out in the next 6 months? And can save $3,000 in that time? Well that will probably buy you about 2 to 3 months in Southeast Asia. Or 1 month to 6 weeks in Eastern Europe. And it probably won’t give you much time in Western Europe or the US, but might give you some decompression time in between jobs.
The reason some people prefer this option is that it makes the decision making portion of a mini retirement a little easier. It’s a more straightforward approach that is only about how much money you can save, then what can that money get you.
The Activities Forward Approach
When budgeting for a gap year, the activity forward approach basically reverses the decisions of the money forward approach. First you decide on location and activities, then figure out how much money you need. This is the option I lean to. Mostly because my time in hostels is over and I want to go to see as much of Europe as possible during my own sabbatical. So, I will walk you through the exact process I used to build my budget.
Where To Go and What To Do
Obviously, this is the first question with the activities forward option. This is because your budget will vary widely depending on where you want to go and what you want to do. Do you want to start a business in New York City, one of the most expensive places in the world? Do you want to travel around the globe? Are you trying to transition work and make your side hustle your main hustle? Or transition to a remote job? All these decisions will way in on your budget.
Like I already said, I want to see as much of Europe as I possibly can. I also want to travel rather slowly, spending about a month in each country. And, I know that I have to bounce in and out of the Schengen Zone due to visa constraints. What does all this mean? It means I am likely going to need a long period of time, about 2 years, in one of the most expensive regions in the world.
Budgeting and Savings
Once you’ve decided your activity, it’s time to figure out how much money you will need for the time you think it will take. One of my favorite resources is numbeo.com. It’s this awesome website that has cost of living data from all over the world. If you’re planning on traveling during your sabbatical, then you can make a tentative itinerary of all the places you want to visit, and look up their cost of living. This is exactly what I did. I mapped out a tentative itinerary of (31!) countries, and looked up all the cost of living. Turns out I need about $50,000 a person! Ouch.
For any other kind of activity, like starting a business, you’ll need something more sophisticated, like a business plan. Or if you want to extend parental leave in order to spend more time with your kids, then that will take analyzing the expenses in your budget.
After you figure out how much money you need for your activity, you will still need to calculate the gap in your income and expenses. And try to increase that gap if possible, just like in the money forward approach. The activity forward approach just gives you a target amount to focus on.
Other Things To Consider When Budgeting For Your Gap Year
Emergency Savings
Regardless, of which approach you choose for budgeting and savings, you will need an emergency savings amount. I repeat, you WILL NEED an amount for emergencies. For me, I grossed up my $50,000 by 15%. This means I took all of the costs I calculated for my sabbatical, and multiplied it by 115%. Which brings me up to $57,500 per person.
An emergency fund is crucial to handle the what ifs. For example, if you’re traveling what if you have to head home for some reason? You will need an emergency fund to be able to go home at the drop of a hat, and then potentially head back out on the road too. Travel insurance will also be crucial for emergencies in this case.
Consider Transportation and Logistics
Even though Numbeo is great for calculating the cost of living in a location, it will not calculate the cost of the transportation to get to that place. So another thing to consider in your budget will be the cost of transportation and logistics. Even if you’re staying mainly in one place, you may want to take a vacation during your time off. I used the gross-up method and used a 30% target for transportation. Which means I am now up to about $75,000 per person! Yikes!
Transition Cushion
As you can see, I personally believe that the worst thing that can happen to you on a gap year is running out of money. But once, you’re done you will need money to transition back into regular life as well. Especially if you want to do something like find a job in a new field. Otherwise you will basically have to go right back into what you were doing prior to the sabbatical. Which may be not what you want after a period of self-discovery.
I really hope all of this was helpful to you in building a sabbatical budget from the ground up. And the resources mentioned will help you take that next step of action! One of the very best things you can do after completing these steps is to set a date for your career break. Because I need so much money for my sabbatical I know it’s going to take me a while to save it. But I can’t let my motivation languish. So I set a date, July 2, 2029 baby! There’s something so concrete about setting that date for a gap year. It made it so real! Only 5 more years!
Did you find this blog post helpful? What questions do you have? Let me know in the comments!
