A gap year is almost a rite of passage for students in the United Kingdom, where they take time to travel or get life experience before going on to university or getting a job.
But the term can also apply to working adults taking an extended break from their careers to fulfil a goal – often without quitting their jobs. It could last from six months to a year, or longer, if you’re doing further studies.
You could take the time off work to travel, volunteer or fulfil a goal with your family. But first, you need to be financially ready for this extended work leave.
Unless you are on a study sabbatical funded by your company with a monthly allowance thrown in, it’s unlikely you’ll have an income during your break. Here’s how you can prepare for your own “gap year” off work.
1. PLAN AHEAD
Start at least 12 months in advance: Work out a list of your responsibilities and how you intend to manage these while you are away, says Shikha Gaur, senior vice-president and an appointed representative with Ipac Financial Planning Singapore.
Shikha says that “issues that can crop up run the gamut from not having enough finances to manage your ongoing commitments to seemingly trivial issues like searching for a tenant for your home or getting someone to service your car and collect your mail while you’re away.”
If you want to take time off work rather than resign, it helps to set fixed dates of travel as well as a specific length of time you’ll be away. “This makes it easier to negotiate time off with your employer,” says Shikha.
2. SAVING FOR YOUR TRIP – AND MORE
Research ahead on living expenses before your trip: It’s important to do careful research and work out estimated living costs, such as accommodation, travel and meals. If you can, speak with someone who has gone on a similar trip and find out how much they budgeted and spent.
People often underestimate sabbatical expenses, says Shikha, who recommends that, in addition to your sabbatical budget and any other funds, you set aside at least three to six months of emergency funds. This amount is based on your monthly expenses in Singapore. She says that “this emergency stash is to assist you should you decide to extend your sabbatical, or if you return and decide on a change of career and need some transition time.”
3. FUNDING YOUR TRIP
Besides covering the cost of your commitments at home, here are some ways to help you fund your trip.
- Lease your home: “The rental income can be used to cover your mortgage repayments or fund your trip,” says Shikha.
- Hire out your car: If you don’t want to sell your car, Shikha advises lending it to someone who is happy to cover the costs, even if partially. According to the Land Transport Authority’s Private Car Rental Scheme, the car must be registered under the name of a private individual and the hirer must meet the age and experience criteria specified in the insurance policy. More importantly, check that your insurance policy covers this sort of use.
- Organise a garage sale: A clear out will rid you of unwanted items, and the proceeds can go towards your gap year budget. If you have time, make a list of items for sale and email them to your friends, then set aside a day (or more) for a garage sale. Or auction off your items on online trading portals.
4. REDUCE YOUR FISCAL COMMITMENTS
Gym, country club and other memberships should either be transferred to someone else or downgraded to a sleeping account where you pay a nominal sum each month.
- Don’t forget your monthly allowance to parents: If you can’t meet this commitment, or any of your monthly commitments, you may need to re-look your existing investment portfolio and make adjustments where necessary..
- Shop smart for your trip and keep your costs down: Check with your credit card issuers for travel benefits and privileges your cards offer. “Some cards also offer personal travel accident insurance cover,” says Julienne Loh, vice president and country manager at Mastercard Worldwide.
5. PLAN FOR THE UNTHINKABLE
Secure adequate health and travel insurance coverage: Before leaving on your trip, ensure that you have the appropriate health and travel insurance. This should be done at least three to six months before you leave.
“Some insurance premiums don’t cover you adequately, especially if you’re travelling to exotic locations, so be sure to double-check as unnecessary medical bills in a foreign country can really impair your overall financial position,” says Shikha.
Shikha adds that “the typical travel insurance policy should be able to cover you for an extended period of time, typically no more than 183 days (approximately six months) consecutively out of Singapore.”
If going on no-pay leave affects your employee benefits, apply for a replacement policy outside of what your company provides. “It’s always good to have separate insurance coverage in the event that you leave the company, or require additional coverage,” explains Shikha. “Don’t forget to factor in any additional increase in premium costs.”
6. MANAGING MONEY FROM ABROAD
- Use online banking services: Check if your bank has an online banking service through which you can access your funds and pay your bills to avoid late fees and interest charges, advises Julienne. If you have limited access to the Internet, consider using a debit card.
- Setting up a Giro arrangement to pay recurring bills is also useful. “It is best to set up a pot of money to settle all your fixed monthly bills for the length of time you’re gone, plus another two to three months’ worth,” suggests Shikha. “It’s also prudent to nominate a trusted person to have access to your account in case an emergency crops up.”
- Ask your bank about overseas transaction fees: Check with your bank for the most economical way to access hard cash from your accounts when you are overseas. You’re likely to be charged an administrative fee each time you use your ATM debit card to withdraw money from machines abroad but there is no additional fee if you sign for purchases at a shop. An alternative is to bring travellers cheques to cash as and when you need them.
7. BEFORE LEAVING: MAKE SURE YOU’VE SETTLED YOUR LEGAL ISSUES
- Draw up a will: Regardless of whether you’re travelling alone, as a couple or with your children, it is prudent to draw up a will. This ensures that the rest of your family will not be left in the lurch should something happen to you while you’re away.
- Give a trusted family member the Power of Attorney to legally act on your behalf: This is a good idea as there may be situations that arise during your sabbatical which require your physical presence.
So getting a lawyer to draw up a will or Power of Attorney would be another expense to factor into your budget. There are two types of Power of Attorney – durable and limited. The former allows the appointed person to act in relation to almost any type of transaction, such as managing your property on your behalf. The latter is usually task or time-specific.
Ensure that the Power of Attorney is kept for very task-specific issues and revocable. “As you are entrusting a third party with significant authority, make sure this is somebody you trust implicitly,” says Shikha.
Shikha Gaur is the senior vice-president and an appointed representative from Ipac Financial Planning Singapore, an international financial advice and investment group. Call 6512-7000 for general enquiries or visit the company's website at www.ipac.com.sg.
Julienne Loh is the vice president and country manager at Mastercard Worldwide. Go to www.mastercard.com/sea/gateway.html for more information on utilising Mastercard cards and services overseas. Access the Mastercard Global Service emergency numbers here; numbers are listed by country in this online phone directory.
This article was originally published in SimplyHer April 2011.