How much money do I need to budget for my sabbatical?
Are you thinking about a sabbatical? You are not alone. According to a study by XING, the online social network for professionals, about 10% of Germans have taken a break from work. In addition, 21% are considering doing so. But how to plan for it? And what are the financials around it?
When it comes to a sabbatical there are two things to plan - how to manage before the sabbatical and how to manage during the sabbatical. If you do not stay on with your employer there is also a need to plan your professional career post-sabbatical. We will show you a couple of models how to go on a sabbatical for short breaks and longer breaks.
If you plan to take a short break (1-3 months), choose the following approach:
1. Overtime - Compensation through saved working hours
Should you be able and allowed to accumulate and compensate overtime, this might be a good model for you. Many companies nowadays have a flexible model and will allow you to have a overtime account. These are often limited though to a maximum number of hours. I personally have used this version multiple times to travel for 1-2 months. The advantage is that you will be fully paid during the break. Also if the company were to pay out the overtime, it is subject to taxes as with your regular compensation.
2. Buying vacation
Alternatively, you can transform your bonus into a vacation, this basically means “buying” vacation. Some companies offer the possibility to buy vacation days to a certain extent. The number of weeks you can buy depends on your bonus. Again, the plus is that during the break you receive your normal salary.
Options for a little bit longer sabbatical (4-12 months):
3. Part-time model
Normally, when you agree to a part-time model, you decide in favor of a 80% workload and work 80% and receive a salary of 80%. You can also use the part-time model in a slightly different manner. For example you want to take a one year sabbatical, and you work for 2 years to do so, then you will receive a salary of 67% (or two thirds) in the years 1 and 2, working 100%. During year 3, you would also get 67% of your salary by working 0% . The key consideration is: how long do you want to go on a sabbatical and which % of your salary is enough for you in the time before your sabbatical. Based on this you can calculate how many months or years you work 100% by receiving a lower pay to continue getting compensated during your sabbatical. The advantage here is you are still employed and your contributions to pension and health care schemes continue. Obviously, the disadvantage is that you enter an advance payment agreement with your employer. Also, as you officially work part-time, you contribute to a lower extent to the pension scheme. Here you should calculate which gap you might have and plan to reduce this gap.
4. Unpaid leave
Unpaid leave is an alternative as you keep your job when going on sabbatical without receiving any salary. The advantage is you continue to have a job, but the huge disadvantage is you will not receive any salary when traveling. Also during this time you will not contribute to the pension scheme - we strongly recommend to close the gap by saving money beforehand or afterwards.
Let’s talk about the least favourable option. You could resign and and go on a long-term trip. During a certain period of time, you might even receive payments (overtime, vacation) when leaving the company. Please be aware that this option is not an ideal option for several reasons. First and foremost, you will not have any job when returning to the job market. If you resigned you also have the possibility to receive unemployment benefits, but be aware there is a blocking period of ca. 3 months during which you will not receive any benefits. Should you receive benefits, then you receive 60% of your previous income. During this time, you are not allowed travel, but need to actively apply for jobs instead. Applying for a job can take some time, so be prepared that you might need to save additional money when going on travel and coming back to bridge that time. Lastly, during this time that you do not work, all your contributions to pension etc. amount to 0, hence there is a gap we recommend to fill when returning to a job.
So to answer the question, how much money you need depends also on the model you choose.
During a trip, you usually need EUR 1.000-4.000 per month depending on your travel style. In addition you might have fixed costs back at home to cover. Should you resign you need to “budget” at least 3 months for the time applying for companies, during which you have to cover your fixed costs (rent, food etc.). And should you opt for a part-time model, unpaid leave or a resignation, you would need to close the gap in terms of your pension contribution. So in total, planning at least 2 years ahead for long-term travels and up to 1 year ahead for short-term travels is recommended in order to save up enough money to cover the expenses during and after the trip.
Written by Clara Creitz
Finelles Founder. Coach and Consultant (UBS, Towers Watson).