Sabbatical / Before-Quitting Personal Finance Checklist

Dear Burning-Out,

First off—thank you for sharing. Money isn't everything, but it can frustratingly become a serious consideration on tough life decisions like this one. It’s pretty hard to live your dream life, let alone carve out the mental headspace to figure out what on Earth your dream is, if you're worried about finances. I'll share a seven item checklist, to help you plot out your next steps and break down the financial part of this tough decision...so you can focus on the soul-searching part.

Your Sabbatical and/or Before-Quitting Personal Finance Checklist

1. Know you've got company and start small - with a vacation.

Ok...so this one isn't explicitly financial, but it bears mentioning. If you've been feeling on edge at work, but also guilty about taking time off....know you're not alone in considering taking a sabbatical, or ultimately quitting. We wanted to start by saying we hear this question so often from the ambitious, educated, and hard-working mid-career professionals that make up the Steward community. The research also shows that the "The Great Reflection" is real, widespread, and spans industries and job-levels.

• Accenture research among C-Suite execs show that 83% are “exhausted due to constant worry about their job and their family health” and 81% are “distracted due to the disruption in their family life,” such as someone falling sick or a daycare closing.
• A recent Expedia survey surfaced 47% of people used vacation days last year not for vacations, but to care for ailing loved ones or children stuck at home. 
• A McKinsey study in 2020 showed that 40% of employees are looking to leave their job in the next 3-6 months (see below). That's on top of the more than 15 million US workers—and counting— that have quit their jobs since April 2021. This isn't "business as usual" levels of attrition. 53% percent of the employers McKinsey surveyed, said that they are experiencing greater voluntary turnover than they had in previous years, and 64% expect the problem to continue—or worsen—over the next six months.

Given the numbers above, my first suggestion for anyone considering a sabbatical or even quitting is starting by taking a 1-2 week vacation, to unplug from the day-to-day stress of work to:

- Give yourself time to run the numbers in Step 2.

 - Give yourself headspace to think through whether what's making you unhappy is 

(a) exhaustion—the cure could be some time to recharge 

(b) disliking the people you work with—in which case a new company in the same space could be the solution or 

(c) fundamentally disliking what you do—in which case, a larger career pivot could be worth exploring.

An initial 1-2 week vacation may reveal that you just need more time to figure this out all together, in which case you could step up to exploring a sabbatical.

I risk stating something as obvious as "take a vacay" here....for one reason. Back when I was at McKinsey (a place that's no stranger to people quitting, even pre-COVID), a Senior Partner hung up a cautionary-tale analysis on the entry to his office...nearly 100% of the folks who left McKinsey had unused vacation days when they quit. Yikes. Full disclosure—I was guilty of the same when I left! A quick vacation can be a great way to let steam out of a pressure cooker situation, and to think through these decisions outside of "fight or flight" mode.

2. Figure out your average monthly spend

Okay, pep talk done—let's run the numbers. You can figure out your historical monthly spend—one of the best predictors of your future monthly spend—in one of two ways.

(a) Budgeting App: Dust off Mint.com (a little ad-filled for my tastes), or upgrade to YNAB (You Need a Budget) for less product-pushing, more detailed, and an almost cult-like following. These will help you quickly analyze your own spending data over the past year, to come up with a rough monthly spending #.

(b) The 80/20 approach: Rather than tediously linking tons of accounts, or pouring over monthly statements, focus on the 5 "big rocks" of spending that make up 80%-90% of most households' budgets. These are: mortgage or rent payments, childcare/school, major debts (student or car loans), monthly credit card, and extra recurring expenses (e.g., utilities, home or life insurance). At Steward, when we run the numbers for our clients (alongside benchmarking their spending to peers and developing their personalized investment and tax strategy) we also add on a "shit happens" buffer of 10% over above the total of those big 5, to be conservative since…well, shit happens! But you can always tweak this down, instead, if you're ready to adjust to a more bare bones lifestyle.  

3. Set a sabbatical (or career-switch) savings target

Use your monthly spend to set a target that's based on the facts vs. a finger in the air. Here's how:

A. Determine how much time you'd like to be off

I've included some starting (conservative!) numbers depending on the goal of your sabbatical, based on what we've seen our users find helpful over the last year.

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B. Multiply your monthly budget by the # of months you'd like to be off, to set your savings target

You may want to up this target if you're planning for a more elaborate "backpack through Southeast Asia" style vs. "take nature walks, meditate, workout, sip a cappuccino, and stare at a wall" style sabbatical. If you're planning to travel, the "big rocks" to add on are flights, accommodations, and treks/tours.

C. This savings target should be separate from your regular emergency fund!  

An emergency like needing to care for a loved one, an unexpected major medical issue, or major home repair, can arise on sabbatical as easily as any other time. The standard suggested emergency fund is ~3-6 months worth of expenses, but ultimately this is a personal choice.

Our recommendation is 3 months if you have two sources of steady income (e.g., you're married and both you and your spouse are employed) and 6 months if you have one source of steady income (e.g., you're single or the sole income earner).

3. Set up a savings plan to hit this target

A. Where to save:

Start a new account: Set up a separate pot of money—many of our clients call it their "opportunity fund"—to finance your sabbatical or next move. This serves up a double benefit of

(a) preventing you from accidentally dipping into it for day-to-day expenses

(b) giving you a much greater sense of stability and peace of mind (read: permission) to use big amounts of money to accomplish what you want to do with your time off.

I'd strongly suggest not using retirement funds (e.g., a 401(k) or IRA) for this pot. You don't want to lose out on their awesome tax benefits, not to mention pay the penalties that come from drawing money out of them early. The government explicitly set these up to incentivize you to not touch them until closer to 60! 

‍If you're planning on taking the plunge within the year --> stash this in a high yield savings account.

‍This will offer you a much higher interest rate than a standard checking account and easy flexibility to take funds out for when you're ready to hit the trigger.

There are 4 characteristics I look for in great savings accounts.

(1) FDIC-insured

(2) easy to sign up for and use, with 24/7 customer service and strong mobile app reviews

(3) competitive interest rates - as of 6/2022 that looks like a rate around 1.0% (33x the current average checking account rate of 0.03%), check Nerdwallet for the latest rates, which might be even better!

(4) allow you to segment your savings into different buckets (e.g., emergency fund, sabbatical fund, home goal, wedding goal etc.)

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My current top pick on providers based on these factors, and leading the pack on interest rates, is Ally, followed by Marcus. Again no dog-in-the-hunt here, so if you find a spot that hits those characteristics with even higher rates, go for it!

‍If you're planning for a sabbatical or quitting 2-5 years out --> invest it conservatively. 

If you already have personal investments, you could hold onto those and just earmark them for this goal. If you're setting aside new money and are skittish about investing, I'd suggest investing conservatively—at the most conservative, ~30% equities (plain-talk: stocks) / 70% fixed income (plain-talk: bonds) in low-cost indexed ETFs.  

Why the 30/70 breakpoint? This sits very close to a 0% return even in the worst of times (e.g., 2008-2009 great recession) at, performing at -1% over 3 years and +1% over five years during that time frame (see below).

Many large brokerages like Vanguard and Fidelity offer this 30/70 split in single low-cost investment, which helps you set it and forget it without a ton of work. Check out VTINX from Vanguard. Another hack to hit this allocation is called a retirement income fund...which (understandably) might throw you. The "conservative" investment approach that they're using for retirees, is just the type of conservative investment you're looking for here. We have no affiliation with Vanguard and no dog in the hunt here, so if you find something similar at low-fees and consistent historical returns, go for it!

B. How to save:

a. Set a "Freedom Date"—work backwards to target how much you'll need to save each month to hit that date, and potentially tweak the date a bit to where you get to a spot that the monthly savings feels doable.
b. Set up automatic savings—pay your future "sabbatical-ing" self first. There's never going to be a perfect time to take time off or quit (from a career, family, or money perspective). And it will never happen unless you make it a priority! I'm a big fan of "reverse budgeting" = filling your plate with veggies so there's less room for dessert. Automatically saving into this account is way easier and more sustainable than forcing yourself into a draconian day-to-day budget and second-guessing every online purchase or takeout bill.

4. Reach out to HR to figure out your company's sabbatical policy  

Here's a list of strategies to explore, in priority order of pay/benefits.

a. Explore if you qualify for disability leave

If you're taking time off for a mental health related reason, this is often covered by disability leave (...in fact, mental health reasons are the largest driver of disability leaves!). Companies aren't often proactive about sharing that this type of leave exists and that it's often super generous! You can term it as a short term health leave or sabbatical with colleagues, and let HR do the rest.

 b. Ask if you're eligible for a paid sabbatical

According to a survey from the Society for Human Resource Management, the percentage of companies offering sabbaticals (both paid and unpaid) rose to nearly 17% of employers back in 2017. This number is likely even higher today, and continuing to increase, as companies scramble to retain talent during COVID. Some employers offer full-base-salary, and others offer a % of base pay. If your employer doesn't officially offer this, it's still worth asking. This article from HBR, which shows that organizations benefit when employees take sabbaticals, might help make the case.

 c. Explore an unpaid leave of absence, with healthcare still covered

This will give you more peace of mind since your healthcare is covered (ideally including mental healthcare—in case you'd like to work with a therapist). Sharing a real-life example from one of our users who used this strategy:

d. Explore an unpaid leave of absence, without healthcare covered

This opens up the option for you to return to work, in case you don't find anything you like during sabbatical, and also prevents you from having a tough-to-explain-hole in your resume. 

e. Ask how much vacation time you'll be able to tack on / cash in

5. Max out your benefits

Particularly if you're thinking about quitting or quitting after your sabbatical, dust off your job's benefits packet (or ask HR to re-send your way) to see what you can max out before you walk away. 

Ask HR about what benefits are covered, even if you were to take unpaid extended leave

• High Priority: 401(k) contributions, medical care outside of the country if you're planning to travel, health care insurance
• Nice-to-haves: free gym access, meditation apps, career coaching.

Schedule medical appointments and dentist visits

Max out your fitness reimbursement or mental health benefits 

 Drain your flexible savings accounts (FSA). 

• These are use-it-or-lose it!  Consider loading up on contact lenses or new eyeglasses, or maybe even getting Lasik. In many plans, you can even use the funds for the therapy, or drug and alcohol treatment, that you need to get through your remaining days of work.

Apply for credit if you'll need a higher credit limit, since it's harder to do without an active paystub (this is more a hidden benefit of working, than any one employer!)

6. Don't forget insurance  

Many folks rely on their employer for health and life insurance, so if you're taking an unpaid sabbatical or considering quitting your job without a new job in hand, I definitely recommend looking into purchasing health and life insurance. Although it's a tough pill to swallow, you'll sleep better knowing the severe downside case is mitigated.

A. Health insurance

This one's especially important given we just experienced a global pandemic! Most employers’ health plans allow you to maintain coverage through the end of the month in which you resign. So it's wise to plan your last day to fall early in the month. That essentially buys you a subsidized month of health insurance, which could be worth hundreds of dollars. If you don't already have a new job in hand, look into:

(a) being added to your partner's health insurance (likely the best option if you're married)

(b) using COBRA (if you're at a company with 20+ employees). This requires employers to give you the option to extend your health insurance for up to 18 months. Note: your premiums will likely significantly increase, since you'll have to cover your share of the premium, the part your employer used to pay, plus admin costs—to the tune of $400+ for an individual per month, $1,200+ for a family. So if you're young and healthy you may want to think through...

(c) buying your own coverage through the nation's public exchanges. It probably won't compete with healthcare coverage through your employer at a similar cost, but it'll ensure your major healthcare costs are covered…which is a real threat! Credit Karma published data earlier this year that its members have taken on an additional $2 billion in medical debt collections from September 2020 to April 2021.

(d) if you’re younger than 26, get help from Mom and Dad. Starting in January 2011, insurers must allow you to be covered by your parents’ policies until age 26. They can sign you up for coverage during their employers' open-enrollment periods coming this fall. But first be sure to compare the cost of coverage under your parents’ plan with that of getting your own—it might be less expensive to go it alone.

B. Life Insurance

This one is particularly important if you have kids depending on you! Many folks rely on their employer's life insurance coverage, but unfortunately this is not a benefit you can take with you when you leave. The best time to shop is when you already have coverage from your employer. Being proactive now to get coverage beyond what your employer provides will help you lock in more reasonable premiums.

Where to buy this: Check out policygenius.com as a place to easily shop different life insurance policies. Added plus, there’s some good content to "de-jargon" the chock-full-of-jargon filled insurance space. They're brokers so they do have a dog in the hunt, but they do give you price transparency across many different providers which helps make an otherwise "phone your uncle's guy" type industry feel a lot better.

What type of insurance to buy: 

This is a buyer-beware type space. Term life insurance for a time-period (finance-speak: term) that gets your kids through college or through when you pay down your home mortgage, is the right answer for most people! 

I say this as someone who explicitly does not sell life insurance, without any skin in the game here.I've seen lots of really smart professionals get stuck in whole life policies, variable universal life policies, and all sorts of other fancy (read: overly-expensive) stuff on insurance and feel guilt and regret later. Every type of insurance does have someone that could benefit from it...but people just get oversold in this space more often than they should! If someone comes to you selling anything more complicated than straight-forward term life insurance (i.e., mixing investments + insurance, mixing tax strategies + insurance), have your antenna up.

7. Make a plan for your retirement savings

401(k) style accounts: If you have an employer-sponsored retirement plan (e.g. 401(k)), I suggest you roll it over into an individual retirement account, or if you have a new job, into your new employer’s 401(k) plan vs. cashing it out.

‍HSA accounts: You'll also want to ask HR about how you can transfer your HSA, if you're in a high deductible healthcare plan and have been saving into a health savings account, which is different from an FSA (I know, I know— acronym soup!). HSAs are NOT use it or lose it (that's what makes them different from FSAs). And they're actually one of the best tax retirement savings vehicles out there, since they're (a) triple tax advantaged (tax-deductible going in, tax-free growth, tax-free coming out) (b) investable (c) can store thousands of dollars. Bottom-line, if you have one of these bad boys—you don't want to lose it!

Okay, I acknowledge this is less than riveting… why go through the effort?

- You won’t be able to make additional contributions to these accounts once you leave the company.

- You might miss notices from your former employer about any changes to the plan, such as new fund offerings or additional fees. Not to mention missing that you have them all together!  In my past role as a white-glove planner, I had multiple clients who literally forgot about old 401(k)s and then had to go on serious hunting and fishing expeditions to use those funds later in life! 

- 401(k) fees are famously high (read: ~8x higher than fees available in other types of accounts), and many folks miss them buried in the fine print…in fact the US Government Accountability Office (GAO) just released that 40% of Americans don't even realize they're paying 401(k) fees !  

- Especially if you roll over to an IRA, you’ll get the benefit of more investment options.

More resources

For the still-stressed-about-financial-planning sabbatical-ers:

• Sabbatical Financial Planning - This article by Kitces has another comprehensive overview of the financial implications that come with a sabbatical and how to best navigate them. If you're still jonesing for more financial peace of mind after reading our Steward blog post, then go ahead and give this a glance.

For the soul-search / career-pivot sabbatical-ers:

• Finding Your North Star - I found the first couple of chapters of this book super helpful when I pivoted from being a consultant to this new career. Recommended by one of my best friends from growing up who also happens to be a psychiatrist. Very helpful exercise in particular on battling down the "what will others say" voice inside.
• A book from D.C.-based therapist     James Hollis - "A Life Examined: Wisdom for the Second Half of the Journey" - Amazing, intense, easy to read through, and recommended by many executive coaches. One of those read-a-chapter, digest it, and come back another day to read another chapter type of books.
• “In Transition” by Burton & Wedemeyer-  a book recommended by multiple McKinsey career coaches for the hundreds (thousands?) of folks that naturally leave McKinsey each year.
• A great “lean in” article from the Muse on how to develop your ‘elevator pitch’ - the ‘blurb’ you carry around in your head as you network and meet with folks. Consider using this to help you draft your own Summary or Profile which you may want to include in your CV and/or your LinkedIn profile.  
• An Harvard Business Review article on thinking about jobs, work, relationships with organizations and workplaces, and when and how to leave them. Food for thought.

For the travel-the-world sabbatical-ers:

• Look into "steals" to help defray travel costs (a) multi-week car rentals (can often run as low as $46/day including insurance) (b) using Airbnb (often 1/3 the price of major hotel     chains) (c) booking flights with multi-day layovers.
• Check out the daily cost of living in different countries- Daily Budget for 35 Countries
• Optimize reward points and manage your expenses by using a hierarchy of credit cards. The Points Guy has an amazing website with all sorts  of tips and tricks to optimize travel rewards.  If done well, this really adds up! We've heard great things from Steward users about Chase Sapphire Reserve Card (for purchases) given their point system, Starwood Preferred Guest Card (for hotels),  Schwab Debit Card (for cash withdrawals) since they do not charge ATM fees or international transaction fees (these will add up over time).
• Check out T-Mobile’s plan. It’s the cheapest and it works in most places, but full caveat that their customer service is terrible.  
• A few of the blogging sites and books that come highly recommended by our world traveler sabbatical friends are: Nomadic Matt, The Blonde Abroad , and for even more inspiration, an incredible book filled with ideas and advice is Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel.

FAQs

Who is eligible for a sabbatical leave? Can I take one?

According to a survey from the Society for Human Resource Management, the percentage of companies offering sabbaticals (both paid and unpaid) rose to nearly 17% of employers in 2017. That’s a significant gain from 1977, when McDonald’s instituted what was arguably the first corporate sabbatical program in the United States. But, a lot of HR departments have recently started updating policies given COVID, in order to retain talent they're nervous will soon leave...so this is definitely worth exploring with HR at your work!

Policies vary by company, but companies often offer sabbaticals after 5-10 years of service from 4 weeks up to 12 months (Starbucks, Citigroup).Here's a few different lists that show which companies offer sabbaticals:

- 2021 list of tech companies - https://builtin.com/companies/perks/sabbatical

- 2015 list of Fortune 100 companies: including Bain & Company, McKinsey & Company, Charles Schwab, Deloitte, eBay, Epic, Genentech, Intel, One Medical, PayPal, Starbucks, REI, Patagonia, Adobe, Biogen, etc. https://fortune.com/2015/03/16/paid-sabbaticals

Is sabbatical leave paid or unpaid?

As of 2017, only 5% of companies offer paid sabbaticals while 11% make it an unpaid employee benefit, according to a survey of more than 2,700 companies by the Society for Human Resource Management. But this number is rapidly changing, so this is a "don't ask, don't get" type of space! Another option to explore is taking a short-term disability leave, in case a driver leading you to take a sabbatical is a mental health issue.

Why take a sabbatical?

To travel, learn skills, get pregnant, take care of your own mental health or a loved one's health, as a set-up to make an employer change, to think through making an even bigger career pivot, or to have a "beyond two weeks off" time to truly unplug from work and come back at it recharged.

Can you claim benefits on sabbatical?

Typically you can claim benefits on a paid sabbatical (i.e., your company has an official sabbatical policy) but it varies by company for an unpaid sabbatical or leave of absence. Increasingly companies are supporting unpaid leaves of absence, while still covering your healthcare benefits, to retain top talent in the face of the "Great Resignation". It's also worth exploring a short-term disability leave if one of the drivers for you taking time off is a mental health issue.

Conclusion

We recommend following this seven-point checklist to prepare your financially for a sabbatical or potentially quitting down the line:

1. Start by taking solace in knowing you've got company in exploring this question...and by taking a 1-2 week vacation (a much easier time to run the numbers) 

2. Figure out your average monthly spend

3. Set a sabbatical (or career-switch) savings target

4. Reach out to HR to figure out your company's sabbatical policy, going down a prioritized list of leave-types to take full advantage of your options.

5. Max out a targeted set of  benefits before you leave

6. Don't forget setting up health and life insurance

7. Make a plan for your employer-sponsored retirement savings.

So you can focus on the soul-searching part of this next decision...Steward has built a tool to take a bunch of these nitty-gritty finance items off your plate in < 15 minutes. We've also added in building you a personalized investment and tax strategy, since you don't need a second job, in addition to the stressful job you're in already. We've been amazed at what a chord this has struck for many mid-career professionals (500+ on our waitlist and counting!) and we're working as fast as we can so we can help you and yours. You can sign-up for our waitlist here.

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