A Guide to Planning Your Finances for a Career Break

Summary: Life is full of planned or unplanned interruptions that may lead you to take a break in your career. Whether it’s for personal reasons, such as raising a family, taking care of a loved one, or for professional development, such as going back to school or acquiring a skill, hitting the ‘pause’ button on your career is not uncommon. Read this guide on how to plan your finances before and during a career break and how to structure your financial recovery after a career break.

A LinkedIn survey of nearly 23,000 workers revealed that 62% have taken a break at some point in their professional careers. And more than a third (35%), would like to take a career break in the future.

While it’s an option that many of us consider for various reasons, a career break can negatively impact your finances. Preparing for and managing a career break effectively can make it easier to regain financial stability when you decide to resume your career.

If and when you decide to resume your career, you may find it challenging to get back into the cycle of getting a steady paycheck, financial planning, money management and investing.

But, given time and with the right strategies and support, it’s possible to make a healthy financial recovery as you restart your career.

In this guide, we’ll walk you through some steps to help prepare for an upcoming career break and reset your finances after it. Read on to learn how you can regain control of your career and set yourself up for financial success.

How to prepare for a career break

1. Assess your current financial situation

Ideally, you want to understand where you stand financially before you take a career break. Gather all your financial documents, including bank statements, bills and any retirement account information. Calculate your income, expenses, savings and any outstanding debts to get a clear picture of your financial health.

Then, consider the financial implications of your career break, whether it’s due to raising children, caregiving, pursuing further education or something else. Factor in any lost income, increased expenses in the future, or changes in your financial priorities. If you have a partner, discuss how you will manage expenses, savings and investments during your career break to ensure financial stability for your family.

2. Design a career break fund

a. Determine your total career break expenses

Calculate the total amount of money you will need to cover all your expenses during your career break. This includes not only immediate costs like mortgage payments, health insurance and childcare but also long-term financial commitments like retirement savings, education funds and other essential costs. Subtract this total amount from your current savings to identify the financial gap that needs to be filled by your career break fund.

b. Prepare a pre-career break budget

Before taking your career break, create a detailed budget that accounts for all sources of income and categorizes your expenses. Differentiate between fixed expenses, such as rent/mortgage and utilities and discretionary spending, like dining out and entertainment. This budget will help you determine how much you need to save in your designated career break fund and guide your spending during the break to avoid dipping into emergency funds.

c. Create a designated fund

Set up a separate fund specifically to help cover your career break expenses and avoid tapping into your emergency fund. This could be a dedicated savings account, a separate investment account, or any other secure and accessible fund. Regularly contribute to this fund to ensure you have enough money to cover both immediate and long-term expenses during your career break.

d. Include retirement and education savings

Even though you may not be able to contribute to an employer-sponsored retirement plan like a 401(k) during your career break, you can still contribute to an Individual Retirement Account (IRA) if you have earned income in that year or if your spouse has earned income to cover your contribution amounts.

Additionally, if you have children or are planning to further your education, make sure to allocate funds for their education savings as well. Include these contributions in your planning and budgeting to maintain your long-term financial health.

e. Include health insurance outlays

Health insurance is a significant expense that you need to consider when planning for a career break.

When you take a career break, you often lose access to employer-sponsored health insurance coverage. If you’re married or have a partner, you might be able to join their health insurance plan, but it’s crucial to research and budget for the cost of maintaining adequate health insurance coverage during your career break.

Include this amount in your career break fund to ensure you’re protected against unexpected medical expenses.

How to reset your finances after a career break

1. Set clear financial goals

Once you’ve decided to rejoin the workforce after your career break, establish specific, measurable, achievable, relevant and time-bound (SMART) financial goals that reflect your current situation and future aspirations. This could include paying off debt, building an emergency fund, or investing in your retirement.

Also, recognize the challenges you might face after your career break. For instance, if you took a break to raise children, your new money management goals might include saving for childcare and maybe even starting a college fund for your kids.

2. Create and maintain a budget

Financial discipline is key when preparing for and recovering from a career break. To ensure a smooth financial journey, start by establishing a budget before your career break to guide your spending and savings during this period. Although it’s advisable to have a budget before your career break to enable you keep your finances and spending in check.

After your career break, continue to maintain a budget to rebuild your savings and ensure financial stability. List all sources of income and categorize your expenses, taking into account any changes in income, expenses, or financial priorities resulting from your career break.

Consider the additional costs associated with childcare, caregiving, or updating your skills. Work on minimizing non-essential spending to build your savings back up and adjust your budget as needed to reflect changes in your financial situation.

3. Involve your loved ones in financial planning

If you have a partner, work together with them to create a joint financial plan that includes both short-term and long-term financial goals. It’s important to involve them before your career break and equally as important to work together as you re-enter the working world.

If you’re resuming work after the birth of a child, It also helps to divide financial responsibilities between you and your partner or family members and loved ones that are willing to help out. This makes the financial planning process more manageable. This could include managing the career break fund, paying bills, monitoring expenses and frequently reviewing financial goals.

Seeking professional financial advice from a financial professional can be invaluable during a career break and when preparing to re-enter the workforce. A financial professional can help you create a personalized financial plan tailored to your situation, set realistic goals and provide ongoing support to help you stick to your plan.

Additionally, finding an ‘accountability buddy’ — someone who is also rejoining the workforce after a break — can be beneficial. You can keep each other on track, share advice and provide mutual support to meet your individual financial goals and milestones.

4. Review your savings and investments

Determine the status of your savings and investments, especially if you had to dip into them during your career break. Evaluate the performance of your investments and consider reallocating your assets to align with your financial goals and risk tolerance.

Again, resuming work typically means you need to make rebuilding savings a top priority. Set aside a portion of your income towards savings and focus on slowly re-growing your nest egg.

5. Prioritize your emergency fund

Aim to maintain at least three to six months’ worth of living expenses in your emergency fund. Start small, if necessary, but make regular contributions to build it up over time. If you had to dip into your emergency fund during your career break, make rebuilding it a priority.

6. Update your skills and knowledge

Returning to the workforce after a career break may require updating your skills and knowledge. Set aside a part of your earnings to account for course enrollment fees, workshops or certifications to enhance your qualifications and stay competitive in your field. Remember, continuous learning is key to adapting to today’s evolving job market.

Many online platforms such as LinkedIn Learning, Coursera and Udemy, offer flexible learning options that cater to busy schedules and allow you to make payments in installments. This can help you acquire new skills while balancing other commitments.

In addition, network with professionals in your industry and seek mentorship or guidance to navigate your career transition. Connect with former colleagues or managers to catch up on new trends in your field and get their advice on your move.

7. Explore income-generating opportunities

After a career break, you may want to explore new income-generating opportunities to recoup your savings. Consider freelancing, consulting, or taking on part-time work to supplement your income.

Consider looking into passive income streams like blogging, affiliate marketing, selling handmade goods, etc. that can generate income with minimal ongoing effort.

8. Review and adjust your financial plan regularly

Financial planning is not a one-and-done task; it requires ongoing review and adjustment. Revisit your financial goals, budget and investment strategies periodically, to ensure they align with your current circumstances and priorities.

Major life events, such as marriage, parenthood or job changes, may necessitate adjustments to your financial plan. Stay proactive and flexible to weather any financial storms that may come your way.

Reboot your finances with confidence after a career break

Resetting your finances after a career break may seem daunting, but with the right mindset and strategy, it’s achievable. Take stock of your current financial situation, set clear goals, leverage your networks of family, friends and former co-workers, and create a budget to manage your finances effectively.

With perseverance and determination, you can get back on track to achieving financial stability and success. At Mutual of Omaha, we’re just a click away to help you plan and secure your financial future.

FAQs

Q1: Will taking a career break negatively impact my finances?

Taking a career break can have significant financial implications, such as a temporary loss of income and a potential interruption in retirement savings. However, with careful planning and budgeting, you can help mitigate these effects and rebuild your finances effectively upon returning to work.

Q2: How long should I take a career break for?

The duration of a career break depends on your unique circumstances. It could range from a few months to several years. It’s essential to assess your financial situation and consider factors like savings, financial obligations and career goals before deciding on the duration of your break.

Q3: Is it possible to transition smoothly back into the workforce after a career break?

Yes, it’s possible to make a smooth transition back into the workforce after a career break. Consider networking with professionals in your industry, updating your skills and qualifications and being transparent about your career break during job interviews. Highlight any relevant experiences or skills gained during your hiatus to showcase your value to potential employers.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.