How to Create a Budget for Life Before Your Year Off

Budgeting…..ugh.

Not a lot of fun but a necessary evil if you want to take a Year Off work to travel or pursue whatever dreams you want to pursue. Taking the time now to write out a budget will keep you on track for a Year Off. Implementing and adhering to the budget, as well as your income, will decide how quickly you arrive at day 1 of your Year Off.

The goal is to make much more money than you are spending on a month to month basis. You need to save large chunks of money every month for an extended period to pay off your debts, fund your retirement account, and save for your Year Off. And it’s important to start having a net worth mindset. This is more of a big picture view of your personal finances instead of a month to month view.

How to Create a Budget for Life Before A Year Off

1. Figure out your current income and expenses

If you haven’t done so already, read the blog post Calculate Your Income and Expenses. You need to have a good estimate of how much money you bring home after taxes and how much money you spend on a month to month basis. These are the two figures you can adjust up and down, respectively, to reach day 1 of your Year Off within a reasonable amount of time.

2. Figure out how much money you need to save

As Stephen Covey would say, begin with the end in mind. Know where you need to be when all is said and done. In other words, know exactly how much money you need to save before taking a Year Off. If you haven’t done so already, read the post How Much Money Is Needed for a Year Off?. This gives you the total amount of money you need to save to create an emergency fund, pay off your debts, get a start on your retirement savings, and fully fund a Year Off.

This step forces you into a net worth mindset, your total assets minus your total debts. The goal is to save enough money to switch from a negative net worth to a large positive net worth. Once you reach a large enough positive net worth, you will be financially ready for a Year Off. Remember, the goal is to reach that large positive net worth at a young age.

3. Calculate your Year Off Age

Read the post Calculate Your Year Off Age. Take the time to sit down and calculate it out. What answer did you come up with based on your current income and expenses? If it’s an answer you like, that’s awesome! Keep doing what you’re doing and soon enough, you’ll be ready for a Year Off.

If it’s an answer you don’t like and your Year Off Age is much farther in the future than you want, it’s time to get your income and expenses more in line with what your goal Year Off Age is. So do the calculation backwards. Let’s say your current Year Off Age is 35 but you’d rather it be 32. How much more money would you need to bring home per year and how much would you need to cut your current expenses to make your Year Off Age 32?

4. Create a budget based on your goal Year Off Age

You have an idea of what age you want to take your Year Off. Let’s assume your income will stay the same from now until when your Year Off begins. Now calculate what your monthly living expenses can be.

• Take your goal Year Off Age and subtract your current age to get the number of years you have to save.
• Take the total amount of money you need to save and divide it by the number of years you have to save. This gives you the amount of money you need to save per year to reach your goal Year Off Age.
• Subtract how much money you need to save per year from your current after-tax take home pay. This is the amount of money you have per year for living expenses.
• Divide this total by 12. This is your new monthly budget for all living expenses.

This is how much money you have to live off per month from now until day 1 of your Year Off.

5. Implement your budget

The calculation of your new monthly budget was the easy part. Implementing it is the hard part. For some people, you might need to make some drastic changes to your current living situation. It might mean moving out of your current apartment to a new one or finding a roommate. Your weekly grocery and food bill might need to be lowered. You might need to give up cable and Netflix and other non-essential items. “No” will need to become your new favorite word. Delayed gratification will need to become your new best friend.

But remember why you are making those changes. Remember that at the end of the long tunnel ahead of you is a Year Off work. A long break from the rat race. An extended period to travel and to pursue your dreams.

If your Year Off Age is much farther in the future than you want, don’t just give up hope. Start taking a baby step or two towards lowering your monthly expenses. Get that second job you were always thinking about. Find a new job that pays better. Do anything to get yourself moving in the right direction towards a Year Off.