6th November 2014 at 12:01pm
Considering a career break to look after your family, take an adult gap year or volunteer?
Our money saving tips will help you plan.
Taking a break from your career can be life changing. It is a golden an opportunity to spend more time with your family, learn new things and visit new places, or use your skills to make a difference by volunteering overseas.
The big question is, how do you fund it? And what else do you need to factor in so that you don’t need to worry about money and the useful perks that came with your job.
The first thing to consider is how long you plan to take off work. Employers don’t need to offer career breaks so you may have to consider giving up your job permanently to pursue your dream if they don’t. Knowing how long you won’t be earning a salary means you can knuckle down and get planning.
Create a budget and stick to it
How much you think you need during your career break depends on what you are going to do. If you’re staying at home with family, will you have enough money to cover living costs and have some set aside for those unexpected extras?
If you’re travelling overseas to work or volunteer, can you pay your mortgage or rent out your property to cut costs – and have enough left over for travel, food and day-to-day expenses? And what about funds to tide you over until you are back in paid employment? The Money Advice Service website has useful planning tools to help with this.
Become a money saving expert
In an ideal world you’d save for months, or longer, to build up enough money to fund your career break.
Write down what you really spend – it might surprise you how much you could cut your costs. That large daily cappuccino and muffin before work could be costing you close to £1000 a year aloneWrite down what you really spend – it might surprise you how much you could cut your costs. That large daily cappuccino and muffin before work could be costing you close to £1000 a year alone and that’s quite a chunk of money you could save into a tax-efficient ISA.
If you’re married or in a civil partnership, you might want to think about saving as a couple to make the most of tax allowances. In the UK you can save £15,000 tax efficiently in tax year 2014-15 with a new ISA. If one of you isn’t using your full allowance it’s worth transferring money to your spouse or partner so they can too.
More good news on the tax front
Most people don’t realise they could be in line for a refund from the taxman if they stop working before the end of the tax year on 5 April.Most people don’t realise they could be in line for a refund from the taxman if they stop working before the end of the tax year on 5 April. That’s because when your salary is taxed it’s on the basis that you work for the full tax year with the first £10,000 of income tax free, so if you don’t work the full year you’ve probably overpaid. Find out more about claiming a tax refund here.
Aside from making savings and reclaiming tax, there are plenty of other ways to ease the pressure on your finances. Taking a mortgage payment holiday could be an option but you do need to weigh up the pros and cons.
If you go down this route, your payments could be higher when you restart them and lenders’ terms and conditions vary widely. You should also check if it could affect your credit rating.
Keep your financial planning on track
If you do have some spare money, or your spouse or civil partner can help, it makes sense to keep your pension going even if you’re not earning.
If you save the maximum of £2,880, for example, that becomes £3,600 with tax relief and the amount you save has the potential to grow more over the long term. Do remember, though, that when you save into a pension, you’re saving for the future and there could be some ups and downs with the stock market.
One final thought. When you take a career break, any financial protection you had through your employment stops. It’s worth thinking about what could happen to your loved ones in the unlikely event that something happened to you. A life insurance policy which pays out a sum of money in the event of your death could help to pay for much-needed childcare, education, or living costs. And if you don’t have children, it could go towards leaving a legacy for relatives or friends.
As always, I’d recommend you speak to an expert to help you understand what you need for your own circumstances, or find out more on the Money Advice Service website.
Julie Hutchison is a Family Finance expert at Standard Life and regular blogger on the News and MoneyPlus Blog.
This blog and any responses to comments are not financial advice. A pension is an investment. Its value can go up or down and it may be worth less than you paid in.