Rise of the grown-up gap year

20 Feb 2018

By Shadforth Financial Group

The festive season has come and gone and the new year brings with it a renewed sense of hope and determination to achieve your goals. You potentially greeted 2018 with a few hopes and resolutions.

But did your list of resolutions mention your long-held desire to escape the rat race and take some time out for study, travel or simply focus on your health and family? For many, it did.

According to a survey conducted by Hotels.com a third of Australian adults are taking extended career breaks to go travelling and 61 per cent of them choose to do so in their 30s or later. It makes sense – people often go straight into full-time employment after university or study, they reach their 30s and 40s and suddenly realise they’ve taken no time out for their own personal growth.

A new era is born

Once upon a time, the gap year was destined for scruffy 20-year-olds floating from European hostel to European hostel with little more than a backpack and a guidebook. Luckily for us, times have changed.

Campbell Sorell, a Shadforth Private Client Adviser, says it’s a move that’s increasing in popularity.

“More and more people are doing this, it can sometimes be a classic case of burnout and while everyone’s different, ultimately people are exhausted and need time to just stop and smell the roses,” says Sorell.

Whether it’s six months spent exploring Europe or driving around Australia, finally tackling your MBA, launching a business or using your experience to volunteer for a charity – for example a doctor’s extensive skill set would be well received at Doctors without Borders - you need the cash flow in place to take the plunge.

“You need to treat it very much like a project with a clear plan. Write everything down, have it all documented and give yourself the best chance possible to successfully navigate your adventure,” adds Sorell.

Organising your finances

Unlike school-leavers and recent graduates, the grown-up ‘gapper’ is rarely in a position to simply walk away from their financial responsibilities. The usual culprits include  a mortgage, organising your finances and life insurance, all of which will need to be taken care of while you’re not working. If you have dependent children, how do you intend to support them during your time out?

If you’re staying on home soil, but plan to study or launch a business, you’ll need a plan in place for how you’ll cover living expenses and the kids’ school fees in the interim.

Sorell says it’s all in the run-up, enforcing the importance of allocating sufficient time to address these things before you can create change. And it all begins with your budget.

Budget wisely

You may be craving adventure,  but a budget is important to keep yourself comfortable for three, six, 12 months or more, and all without a regular income. Remember, there  will be additional costs to consider too, including day-to-day expenses and travel fees if you’re on an overseas adventure.

“Begin your budget by having a spring clean of your existing expenses. Write down as many line items as possible and go through each one by one to see where changes could be made. It might begin with negotiating insurance providers, adjusting your private health insurance, switching off Foxtel and other providers, or even renting out your car,” advises Sorell.

“If you own your own home, find  out what equity you have and if you’re utilising it to its full potential. Refinancing could be a relatively straightforward and cost-effective way of funding your time out,” says Sorell.

Another way to address this could be to rent out your property. But this also requires preparation - you’ll need to speak to an estate agent and ensure all the crucial paperwork is in place, such as rental and landlord insurance.

If you’re launching a business, you’ll need funds for any required equipment, a website and branding. For those choosing to study, what does the course actually cost and how long will you need to cover your daily expenses while you’re out of work?

Sorell suggests taking a good look at any investments, such as a wine collection or direct shares, as this could also be a good way of topping up your income.

"A lot of Australians own direct shares, or managed funds, but those dividends are often being reinvested which obviously means they get additional holdings. But an opportunity could be to switch to a cash dividend for a period of time, to generate more available funds,"  adds Sorell.

Room to breath

While this may only be a gap year, spend every second wisely and use it as an opportunity to review your life goals as well as your finances. And remember, before anything else   can begin, cash flow is key.

“Cash flow is king. Cash flow is what we really need to work on before taking time out because it’s a big part of controlling the controllables, and knowing that there’s no magic wand to suddenly find all this income,” says Sorell. “But when you take a good look at your cash flow budget, you might discover where you can create that buffer to make all your gap year dreams come true.”

If you’re considering taking a gap year and need help to make it happen speak to your financial adviser.

Educational guides