How to Take a Year Off and Not Starve
18 Sep, 2022
This week, there is intense kōrero (talk) about Jonny's career in our whare (home). It has been a topic of discussion for some time now, but things are hotting up!
I am encouraging him to make 2023 a “work optional” year.
The thought of 2023 being a “mahi (work) optional” year is what Jonny wants too, but committing to doing it makes him as nervous as hell and raises many questions for our whānau. We are discussing many plans and options and hope to make a decision shortly. Writing this blog post has been instrumental in helping us think through our options, but it meant that each time I edited it and thought I was done I thought of something else to add!
This blog post is not just about Jonny, though, I have a close hoa (friend) contemplating the same thing, and I’ve spoken with many people of various ages and stages of life on my Phone A Friend calls who are considering a grown-up gap year too.
Why is he considering this?
The stuck-in-a-rut feeling and relentless work pressure that Jonny is experiencing are typical and common among people. If the Canterbury Earthquakes, Covid-19, and fragility of health have taught us anything, it is to enjoy our brief life. This is not a mid-life crisis; a wide age range of people is looking for different ways to work.
A month off is not enough. Six months might not even be enough, but one complete orbit of the earth around the sun feels like a reasonable length of time to fully explore alternate options.
But instead of just calling it quits and worrying about the downstream financial effects at a later date, I want to show how we are going about financially planning for 2023 should it eventuate. We are putting in the mahi now to create a plan that will give him the option to make mahi optional.
Making a change is overdue.
Jonny’s a graphic designer. He studied at polytech in Ōtautahi (Christchurch), and working in design is what he has done his entire 28-year career. He is very good at what he does, and the reason this blog is always so well designed and my podcast audio so crisp is entirely down to him. He has worked in design companies in Christchurch and Wellington, and he ran his own Interactive Communication company for many years with three mates. After the earthquakes, everything changed, and we moved down to Central Otago. He went freelance, working from our whare. And that is what he has done on a part-time basis ever since.
Although he enjoys the industry and his mind never stops being creative, he is tired/bored of it, too, and at the age of 49, I think it is entirely natural to feel this way. The relentless pressure of running a freelance business takes its toll, as does having to hustle for work, actually do the mahi, and then carry out all the administration to run his one-person band. He’s tired of the costs of doing this; the tax, the software subscriptions, updating his tech, etc. There is a lot that goes into bringing in his part-time income.
We are very grateful within our whānau that we are both in a unique position where we can get by with part-time mahi. For the hours spent clicking away behind his computer, in hand, he brings in $35,000 a year after tax, or $673 a week.
As we were having our kōrero about this, he summed it up by saying, “$35,000 is pitiful for the stress of it”.
He is not necessarily looking to make more pūtea (money); he wants to make pūtea differently. This is the common theme I get from the people I talk with. What side of their personality is stifled in their current role that they could explore if given free rein to do so? I wonder how many people will relate to that idea.
There are three options.
He has been less and less satisfied over time, and I’ve been helping him tweak and change things along the way to help him lower stress and enjoy his work more, but ultimately I subscribe to a three-tier approach when it comes to being unhappy with your work:
STAY, but make changes to your current job.
If you can’t change it, put up with it and don’t complain.
LEAVE.
I like change and find it quite exciting to find a new role; Jonny’s not like that, which is why making a decision is so hard. As an outsider looking in, I think he has reached #3, so I’m pushing Jonny to leave and try something new. Even better, I want him to try LOTS of new things and see what sticks.
Chucking your job in obviously has significant financial implications, but we are fortunate to have joint finances and each other's backs when tough money calls need to be made. I’m not going to lie to you; having a husband who happily went to work for eight hours a day till 65 would be financially rewarding, but I didn’t marry that guy! And he didn’t marry that wahine (woman) either, now that I think about it!
So, I’m entirely on board with adapting the financial journey we thought we were on to enable Jonny to remove stress and find new opportunities. Happiness is key; the financial slowdown will hopefully be brief.
I am finally reading The Psychology of Money by Morgan Housel and this sentence stood out to me:
Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. (page 63).
Exactly! New plan!
How to pay yourself when you are not working
To even consider giving up an income for a year, we have already worked to become debt free, have an emergency fund and have our investments all set up. We budget and track our income and expenses.
This thought to take a whole year off work is a new ‘expense’, so I’m thinking on the fly a bit here, making it up as I go along as I would with any other unexpected expense, but I’m committed to exploring it.
A year off is basically a substantial one-off extravagant expense (not unlike buying something significant like a car or taking a big holiday), and this is how I’m proposing we do it.
Set up a bank account and transfer an entire year of income into it. For us, it would be $35,000. Give it a meaningful name like “Freedom Year” or something equally cheesy.
Pay yourself on the same day you are used to being paid on. In our case, I get paid Rāhina (Monday), so I would also set up a weekly transfer of $673 every Rāhina to replace Jonny’s missing income.
You have to budget and pay attention to your spending every week. If there will be any additional expenses, create budgets and sinking funds and plan for them. After all, you don’t want to be forced back to work because you can’t control your spending and have run out of pūtea.
As you usually would, have a fully stocked emergency fund sitting as cash (more cash!) in the bank. You don’t know what will go wrong in your year off, but I guarantee you something will. You must have a financial fire escape; your year of saved income is not your emergency fund.
I think it's reasonable to assume that our spending will continue in line with previous years, but we are currently wracking our brains and planning for any unexpected expense we can think of.
Although it might be business as usual, it makes sense to go into a year off with a frugal mindset, thinking that if it is not “sparking joy”, I’ll cut the expense.
Taking a year to find your new career is a luxury expense, so you need to be extremely open, honest and realistic with yourself and your family about your spending. Although you may stop buying new work clothes and paying fuel costs to commute, you may spend more by buying new things to use during your year of exploration. In the case of Jonny, a new table saw! Something like a bike to increase your exercise, art supplies so you can work on your painting skills, or a new laptop to pen the novel you know you have in you.
Where will the pūtea come from?
The $35,000 will come from many sources:
Some savings we already have in the bank
Selling the tech he no longer uses
Plus anything else we can sell and turn into pūtea
I will also have any future investment dividends paid out to us instead of reinvested
I intend to apply The 4% Rule to our investments by selling down some of our investments to top up any shortfall.
This will be an opportunity to rebalance our portfolio and I intend to sell the smaller satellite index funds and ETFs I purchased because I wanted to try them out. I’ll keep you posted on which ones.
It will be a mathematical challenge to come up with the pūtea, but once we cobble $35,000 together, it would sit in a bank account, dividing it by 52 weeks, giving us $673. We would “pay ourselves” $673 from this account every Monday, replacing his lost income.
You have to know your numbers!
As the CFO of the whare, even though it would set us back on our journey to fully FIRE, I’m as confident as I can be that we could make this work. All my PocketSmith budgeting has brought me to this moment, and it has given me the EXACT figures I need to provide us with some certainty in our planning - while also accepting that plans might change. This is going to be budgetary heaven for me.
With whā (four) years of data, I know with certainty what he contributes to our whānau each year, so I know what we need to set aside. Luckily for him, I love my part-time job and will continue to work. Plus, we will continue to blog and podcast together, meaning we will still have income, but not enough to cover all our usual expenses without a top-up.
We want him to have the luxury of exploring his options without worrying about the pūtea.
From a budgeting perspective, I’m anticipating that I will just go on budgeting as usual, which includes paying into our KiwiSaver and investments. Still, I’ll likely create another sinking fund bank account where we set a small amount of money aside each week for him to use if and when required during his year of exploration. For example, Jonny loves woodworking, notably designing and building furniture, so if he decides to spend a week in his shed, we want him to be able to buy what he needs to do that.
2023 won’t be a year of deprivation and we are particularly mindful of the example we are showing our daughter because we want this to be a really positive experience for all of us. There will be some stricter budgeting involved, but it will be based around “spending where we find meaning and value”. Dinner out and new clothes are likely to drop lower down on the list. But running shoes and plywood will climb.
We are looking under every rock for opportunities and problems
We anticipate Jonny still bringing in some income. Maybe. But the chance is that it won’t be a reliable source. Any income he does make will mean we use less from our savings and at the end of the experience, if there is anything left, it’s likely it will just get invested in the share market.
As part of our planning and while we are exploring all options, he is in talks with one of his clients to ask if they would commit to bringing him in-house as an employee for a two-day week.
This is a way for him to keep his hand in with a client he enjoys working with, and may or may not eventuate, but it’s good to kōrero about it. If this did happen, we would no longer need as much as $35,000 in the bank; it would lock in set work hours and give him five days off work a week to pursue other interests. It’s not a year off work, but pretty darn close. It is working 104 days a year instead of 260.
He also has an appointment with our accountant to see whether it is worth winding up his freelance business because that would save him a lot in provisional tax, (which he would eventually receive some back anyway). Many questions are swirling around about the best way to proceed here.
HOW will he find his next step?
He will always do graphic designing for whanau and friends. Besides that, he wants to try lots of new jobs, and the chances are reasonably high that he will get paid for those too. He has already started a small role locally as a test of a new opportunity. Because of his valuable skills, I’ve got a good/bad habit of offering Jonny up for various things, and this was the result of one such kōrero! He humours me but politely cautions me that HE gets to choose what he does next year!
I’m proposing Jonny take a year to say YES to new ideas and opportunities and see what he settles on. As I encourage others, I encourage him to get out of his comfort zone and connect with as many people, jobs and careers as possible. Creating new connections will expose him to things he has never thought of.
A grown-up gap-year to up-cycle your life
Jonny just doesn’t know what his future job might look like yet, but he knows this:
He wants to work for someone else as a PAYE employee with set hours
Retrain in something, either within the design industry or elsewhere
Or do something completely different.
It’s wide open! Which, to me, is exciting!
If you are thinking of doing something similar to us, here are some things you need to consider:
From a financial perspective, I’m always motivating and encouraging others to save and invest money, even if you don’t know what you might use it for. I believe that one day when you decide what you might want to do, that pūtea will surely come in handy! This is where we are now at.
Having the support of your spouse, a supportive friend, a business associate, or a relative is critical to buoy you when you have doubts! Seek a range of opinions, both for and against. They will help you see things from a different perspective.
Creating a rough plan of how you will structure your days is important too. Although you don’t have to have something to show at the end of each week, you need to have made a step in the right direction. This is too precious an opportunity to waste laying on the sofa.
Go through your finances with a fine tooth comb; you want to prepare for any surprises as best you can.
If your plan involves study, get onto that early. And be honest with yourself; further study might be an excellent step, but be mindful not to just sign up for a course and kick the can of making a career decision a bit further down the road. It needs to lead you towards something.
The point is to put the mahi into making a meaningful change, enabling a transition to an up-cycled you. And that is hard; it takes a lot of soul searching and putting yourself out there.
Close no doors and burn no bridges as you step away from your work to pursue your year of who knows what. Employers need certainty with staffing, so be upfront with them about what you are doing. Whether you take a year-long sabbatical or quit outright, stay in touch.
You have to be honest with yourself, and if you find yourself going too far backwards financially during your year off, you might need to call time. Your net worth will take a hit because you are spending a lump sum of pūtea, but if it is done in a controlled way, it is just taking a pause, and regular service will resume later.
You are not the first or only person to do this!
One woman I recently spoke with has been a teacher for the last 20+ years and is also planning for 2023 as an optional work year. For her, it’s not so she can jump on a plane and see the world; it’s to see what else she wants to do at home. Time away from paid mahi is a chance to explore her potential. Life has taken her down one path, teaching, and she wants to see what other opportunities she ignored to pursue that career path.
In her situation, she is the sole income earner in her home, which consists of herself and her daughter. But her financial planning is the same as mine. She has been planning for this new season in her life for the last ten years by paying off her whare and becoming completely debt-free, thus eliminating a significant expense. She has been tracking her spending each month for many years, so she knows, in detail, what a year's worth of spending looks like. She has an emergency fund of six months of expenses. Much like I am proposing, she will put a year's worth of income aside in a bank account and drip feed it to herself as weekly “income”. She may pick up paid work as she explores different types of mahi, which means she doesn’t use all her savings.
The big question is always, “what do you do for a job?”
When you are in a transition period like this, it’s awkward when you meet someone and they ask that inevitable question! Having a job forms a considerable part of your identity, and your ego can take a knock if you are not working, even if it is by choice!
You wouldn’t say “I’m between jobs” because you sound unemployed. And desperate.
You wouldn’t smugly say, “I don’t have to work anymore”, because you sound like a tosser.
You would answer it with a question of your own:
“I’m a graphic designer by training, but I’m taking a year out and spending it talking to the widest and most interesting range of people I can about work and careers. So, my question to you is ‘what do YOU do for a living, and why do you like it so much?”
In my experience, people love being asked about themselves, and they love to help other people find their own ‘why’.
Take the leap and explore opportunities.
Jonny has always harboured the desire to retire by 50; what do you know, he turns 50 in November!
While we don’t have enough pūtea to quit work forever, we do have enough money to allow him to take a mini-retirement in 2023 and explore his career options, after which the expectation is that he will continue to bring in some pūtea again to support our whānau. On our horizon is also the plan that when our daughter finishes school in late 2025, we will likely downsize our house, release equity we can add to our investments, and he can quit fully IF he wants to.
All the people I speak with in this state of flux are looking to move towards ‘something’, but they don’t yet have clarity about what it might be. Most just feel that they are missing out on exploring a whole other side of themselves, but without a financial buffer, they either stay in a job they are unhappy in or transition to a job because of the money.
To me, finding the pātea to support us is the easier part. If you have done the financial planning, are clear in your mind about your year ahead, and your partner and whānau are on board, don’t spend one single moment stressing about money! Your focus needs to be on having an incredible year.
But, WHAT IF!?
If you do stuff up and need to make some money, no bother, just go and get a job. Any job!
I will let you know what my whānau of three decides to do, we are still in the planning stages, assessing all options, but a decision is imminent because I don’t want to enter into the “just one more year of working and then I’ll pause” trap.
While we canvass options, I would love to hear your thoughts, advice and experiences around a work-optional year. Please share in the comments below.
