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In today's fast-paced world, it's becoming increasingly common for people to take a break from their careers to focus on other areas of their lives such as spending time with family, pursuing further education, or simply taking a break to rest and recharge.
But, before waving goodbye to your job, it's important to consider how this decision will impact your finances.
Why take a career break?
There are several reasons why you may choose to take a career break:
- Family Responsibilities: to care for family, especially in the early years of parenthood, or during times of illness or caregiving.
- Personal Health and Wellbeing: to focus on health, long or short-term illness or well-being.
- Pursuing Further Education: pursue higher education or acquire new skills to advance career prospects.
- Relocation or Travel: to relocate to a different place, or the opportunity for extended travel experiences.
- Career Change or Sabbatical: to explore other opportunities, transition to a new field, or take a sabbatical to recharge and re-evaluate career goals.
Impacts of Career Breaks
Even a short career break can have a significant impact on an individual's life. These may include:
- Financial Impact: career breaks mean a reduced, or complete loss of, income. This can affect financial stability, requiring budget adjustments and careful financial planning.
- Career Progression Delay: an individual's career progression may be delayed, as they may miss out on promotions, raises, and opportunities for skill development.
- Reduced Network and Industry Connections: maintaining a professional network can be challenging, which could limit access to job opportunities and industry insights.
If you're out of the workforce for an extended period, there may be longer-term impacts. Extended career breaks may result in:
- Skill Development: skill gaps or outdated knowledge. In rapidly evolving industries, this can make it difficult to catch up.
- Retirement Savings: the loss of income and contributions to superannuation can lead to lower savings and a delayed retirement age.
- Confidence and Professional Identity: taking a career break, especially if it's unplanned or extended, may impact an individual's confidence and professional identity.
While there are numerous potential impacts, many people successfully navigate these challenges and find ways to re-establish themselves professionally. Planning ahead, continuing education, networking, and maintaining industry connections will help mitigate some of these effects.
How to minimise financial strain during a career break
The impact on cashflow is often front-of-mind for people considering a career break, and for good reason. However, careful planning across these key areas will help minimise the financial effects:
Budgeting & Saving
- Save money in advance of your career break. The more you save, the better your financial cushion will be.
- Create a detailed budget that shows your current expenses and identifies areas where you can cut back.
- Build an emergency fund of around three months' income to cover unexpected expenses.
Debt Management
- Minimise or eliminate high-interest debt, such as credit card debt, before your career break.
- Consider consolidating or refinancing loans to lower interest rates to reduce monthly payments. Consider the loan type (e.g. principal and interest, or interest only) and the appropriateness of an offset account.
Return-to-Work Plan
- Develop a plan for re-entering the workforce, including job search strategies, networking efforts, and skill development.
- Explore part-time or freelance opportunities during your break to maintain some income and keep your skills sharp.
Career breaks offer invaluable opportunities for personal and professional development. But, without sound financial management, they can also pose significant challenges.
Before you make any decisions, talk to your one of our financial advisors to ensure there aren't any hidden financial consequences you haven't planned for.