The term “gap year” conjures up images of high school graduates traveling the world before enrolling in college, but at different stages in life, people may dream of taking an extended break from work to travel or learn new skills.
In fact, a third of people taking a gap year are now over 30, reports The Broke Backpacker.
If you’ve been working for a while and are thinking about taking this type of “adult gap year,” the thought of having no income during that time can feel overwhelming.
Ultimately, considering all financial aspects and saving for them will help you have a successful retirement.
What is an adult gap year?
An adult gap year is also known as a planned break from work. Reasons for taking such a break can include wanting to travel, learn a new skill, or spend time with family.
There are many different terms for a gap year depending on your age and situation.
- Adult Gap Year: Taking time off work mid-career
- Grey Gap Year: Stop working when you turn 50
- Family Gap Year: Taking career leave when you want to spend more time with your family, such as when a baby is born
“A gap year can be a great way to reset your life,” says Barbara Pietrangelo, CFP at Prudential Advisors, adding that some people take a gap year after receiving an inheritance or retirement money, while others decide to take a gap year after reaching a milestone birthday.
What to consider before taking an adult gap year
Figuring out how much money you will need during a gap year and how long you will need to save is probably top of mind. If you are considering taking such a break, some questions may come to mind:
- health care: How to get health insurance while you’re off work
- Retirement Savings: How not saving during your vacation could affect your retirement savings
- Homeownership: How do you manage home maintenance if you plan on traveling?
- Return to work: Will your employer allow you to return, and what to do if they don’t?
A gap year requires a lot of advance planning, both practically and financially, so here are five ways to fund a gap year as an adult.
1. Save in advance
Determine how much money you will need during your gap year, whether you plan to travel or stay at home. If you are living at home, review your spending history from the past few months. Based on this, you can estimate how much you will need for a year.
If you’re planning on traveling, figuring out how much you’ll need can be tricky. Add up the anticipated costs of transportation, accommodation, entertainment, and food. Also, remember that you’ll still need to pay for housing costs while you’re traveling, like rent or mortgage, utilities, and insurance.
“In addition to your basic budget, it’s important to have some extra money set aside for vacations, pursuing a new hobby, or for future emergencies,” Pietrangelo says.
It’s helpful to keep your gap year savings separate from money you set aside for other purposes. You can do this by opening a separate savings account or using one that offers savings buckets. Also, consider setting up an automatic monthly deposit of your paycheck into your gap year fund.
2. Consider part-time work
If the cost of living during your gap year will be high, consider taking on a part-time job during that time to supplement your savings. This may be feasible if you have a skill or hobby that can easily become a source of income. It may also make more sense for people who aren’t traveling during their gap year.
The nice thing about these side hustles is that you can choose your own hours and set your own prices. People who currently have side hustles make an average of $891 a month outside of their primary source of income, according to Bankrate’s Side Hustles Survey.
Examples of ways to make money during an adult gap year include writing, tutoring, and house sitting.
3. Find health insurance
If you give up your employer-sponsored health insurance, you may have to pay out of pocket for prescription drugs and doctor’s visits. Because these costs can be expensive, consider looking for coverage through your spouse’s employer’s plan or the U.S. government Health Insurance Marketplace.
Another way to find health insurance is through private plans, which can be obtained by visiting insurance company websites or calling agents.
If you’re traveling, consider gap year travel insurance, which usually offers emergency medical coverage (including coverage for events like trip cancellation and lost baggage).
4. Stick to your gap year budget
Whether you’re traveling or staying put during your adult gap year, be sure to monitor your spending closely to avoid running out of money too quickly. This includes setting daily or weekly spending limits. If you’re traveling, consider setting a spending limit for each meal at a restaurant.
“To get the most out of your gap year, create a plan that allows for flexibility,” says Prudential Advisors’ Pietrangelo.
5. Consider taking less than a year off
Instead of taking a full year off work, you may want to take a shorter leave to save money. For example, your employer may be willing to let you take a three-month leave and allow you to return to work at a set date.
Unlike quitting your job for a gap year, knowing you’ll have a job to return to gives you peace of mind and fewer worries during your time off. Plus, a shorter break can be significantly less expensive than a longer one.
Conclusion
Taking a gap year as an adult is more feasible if you prepare in advance. This includes estimating how much you will need and saving up in advance. Also, an important part of planning such a vacation is getting health insurance and planning your travels. Carefully monitoring your spending during the vacation is also an important part of managing your money.
