First, define the break as firmly as you can. Why you need free time in the first place will determine this. If you plan to study for a competitive exam and can’t do it with a full-time job, give yourself a number of tests to succeed. If you are planning to start a business, define the period until which you hope to see profits. If you change jobs, define how long you will be without an income. Without the milestone, you run the risk of prolonging your break and being unsettled about something that isn’t working.
Second, a break requires a corpus to support it. But it doesn’t have to be big. If you have big and critical financial goals, you want to secure them. A big financial goal is one that requires more funding than your regular and routine income; it is essential if it is to be funded. You can give up your annual vacation, but you may still want to send your child to a school of your choice. An objective can be financed by an asset as long as you are able and willing to liquidate it. Sell the third apartment in the suburbs, but do not liquidate all cash assets in the bank.
Third, you don’t have to replace your current income when you’re on break. Your income usually finances mandatory and discretionary expenses and leaves a surplus for savings. You don’t need everything when you’re on break. You certainly want to cover the mandatory expense. Keep a smaller amount for discretionary spending and give up your savings routine. You can return to all of this when you start a new career. Estimate that monthly amount that will keep you comfortable and not worry about your routine expenses. It is appropriate to ensure this.
Fourth, if the break involves new expenses, make sure you’ve included them in your estimates. A friend wanted to pursue a career in modeling and gave up her full-time job at the bank. She was soon exasperated by the amount of money she had to spend on clothes, accessories, beauty treatments and gym routines. Cutting the corners hurt her prospects and spending too much left her uneasy. New business creators wake up without working capital sooner than they thought. Your break needs a business plan like preparation, don’t change it short.
Fifth, do not throw away risky corpus assets that you have created for your new business. Worse, don’t block it on land or property. The money you have estimated and set aside should ideally be in a balanced portfolio of stocks and liabilities. Enough debt to support your regular income needs; equity to keep the corpus growing so that funds you don’t use right away can appreciate the value. Derivative trading and buying lottery tickets will not make you rich.
Sixth, be careful when dealing with large expenses. I have met many retirees who enjoy their large bodies and spend a lot in the early years. They assume that a second career can wait while enjoying the fruits of many years of work. Until they realized they had to work again, much of their body went into home renovation, gifts and donations for children and grandchildren, and spent far away traveling. Estimate realistic. Invest to provide income that keeps you healthy and then see if there is a surplus of pampering.
Seventh, make sure the basics are in place. It is a bad idea to take a break when there are outstanding loans. Remember that your mandatory expense estimate must include all EMI you still have to pay. That can be a burden. If you can’t pay your credit card in full each month, stop using them. If you need to borrow, rely on friends and relatives to make your repayment terms more flexible. Be careful not to lose relationships if you don’t pay for them. Make sure you are fully insured for life and health.
In the eighth, list and classify your goods. These are the ones you will address if your plan faces risks that you did not anticipate. Do not pledge or mortgage your assets unless you see a stream of income coming in the near future to repay the loan and recover the asset. Make sure you know which assets you want to liquidate to finance your break. Keep your documents in order – you don’t want to find out that your estranged spouse is a joint owner. Liquidity is the only trait that your assets should have. The manual definition of liquidity is instant cash conversion at fair value and zero cost. You can’t achieve that excellence, but make sure your assets are close enough.
Ninth, work with a trusted partner who knows your plan and will guide you. Not having an income can create anxieties that are difficult to deal with. You will fall into the trap of denial if you deal with it alone. A husband, a relative, a friend – someone who knows you well enough to hold the mirror to your face when you slip – should be available to guide and guide you. Many financial blunders are warned when another independent voice tells you about the risks you overlook. Sometimes you need a nudge to act.
Tenthly, make sure that you know that you have made the decision to take a break and that you will be aware of the consequences. You will not complain or blame, you will not consider yourself unhappy or you will not imagine that the world is directed against you. You will define in advance how well you can and manage as you go and hope to work within a set time frame. Your finances need to support you and your family while giving you the benefit of your time. Always be in charge.
The author is president of the Center for Investment Education and Learning.)