How Much Money is Needed for a Year Off?

How much money do you need to take a Year Off work and travel the world?

$40,000 for the whole year.

This amount will give you one heck of a year away from work and the ability to do some amazing things while gone.

That’s a heck of a lot of money isn’t it? That’s enough for a house down payment or a fancy new car. But those are things you can buy later in life, so your goal is to save $40,000 for your Year Off.

Ultimately, the amount of money you need for your Year Off all depends on how much debt you have, how extravagantly you want to live while preparing for it, how extravagantly you want to live during it, and how long you are gone.

I think it’s important to eliminate debt before you take your Year Off.

That’s right, completely debt free; no student loans, no car loans, and no credit card debt. You don’t want to owe anybody anything while you’re away.

By being completely debt free before your Year Off, you are eliminating a potentially serious problem…..owing people money while not working……which can lead to not being able to pay your debts and bankruptcy, which is not a good thing!

While bankruptcy is certainly one of those things that falls under the category of “probably will not happen”, it is definitely one of the serious consequences that we want to avoid at all costs. And how best to avoid it? By eliminating all debt and by getting a good start on your retirement savings.

Let’s walk through the absolute worst case scenario if you take your Year Off before becoming completely debt free.

Say your combined monthly debt payments are around $1000 per month ($350 for car loan and $650 for student debt). You saved enough money for your Year Off and to cover the cost of your monthly debt payments.

Halfway through your Year Off, you break your leg while tramping around in New Zealand. You had travel insurance so the initial costs are low but you’re forced to return home. You need medical care for several more months; rehab, MRI’s, doctor’s visits, etc. You’re unable to go back to work, and you’re forced to buy an Obamacare health plan with a high deductible. You end up with thousands of dollars of medical bills, and you’re on disability, so you’re not bringing home any significant amount of money.

You still owe $1000 per month for your debts, and you need a place to live so you have monthly rent and utility bills to pay. All the savings you had for your Year Off and your emergency fund get used up, and your medical bills keep getting higher. You can’t make your monthly debt payments, they fall into delinquency, and you’re forced to declare bankruptcy (which wouldn’t even eliminate the student loan debt anyways). Life would suck.

Now let’s walk through the absolute worst case scenario if you’re completely debt free.

You break your leg in New Zealand, you’re forced to return home from your Year Off, you have thousands of dollars in medical bills, but you have no other debt obligations. You have enough money left over from your Year Off funds to cover your high deductible from your medical bills.

All in all, you’re away from work for a whole additional year after being forced to abandon your Year Off. But the most important thing, there are no loans to go into delinquency and there is no declaring bankruptcy. You finally make it back to making money and being able to pay for all your bills.

See how you’re avoiding a major consequence by being debt free before your Year Off?

I also think it’s very important to have a good start on your retirement savings before taking a year off.

You accomplish two things by doing this:

1. You have a nice big chunk of money to act as a backup to your emergency fund.
2. You have a nice start on your retirement savings, allowing you take advantage of compounding interest for a longer time.

So by getting a good start on your retirement savings, you further decrease your risk of getting into serious financial trouble both when you take your Year Off and later in life when you want to retire.

How much money should you save in your retirement account before taking your Year Off? Obviously, the more the better, but this is variable from person to person.

According to moneyunder30.com, a good goal is to have a retirement savings balance equal to 1 year’s salary. If you make $60,000 per year, your goal would be to have $60,000 in a 401k or IRA. This would be a tremendous start so make 1 year’s salary your goal.

So first order of business……figuring out how much debt you actually have.

It’s time to face the harsh reality of adding up all your student loan debt, your car loan debt, and your credit card debt. If you have mortgage debt, that’s a whole different ballgame, so for now, let’s just focus on the 3 aforementioned kinds of debts. We’ll get into mortgage and home ownership in a different post.

Add all that debt up then write the figure down on a piece of paper.

You need a fully funded emergency fund before your Year Off as well.

I had $10,000 saved in mine, and I think that is a good number for most people. This is the money you use to pay for any emergencies that arise before your Year Off, and it’s a good cushion of money to return home to as well.

Now, back to the million dollar question…..how much money do you need to save for a whole year of traveling?

I think $40,000 is a great number to shoot for.

You can certainly do it cheaper. Go read the book “Travel the World on $50 a Day” by Matt Kepnes. That comes out to around $19,000 for a whole Year Off work.

But with that amount of money, you’re not going on safari in Tanzania and climbing Kilimanjaro and Mt. Rainier. You’re not renting a sleeper van and cruising around New Zealand for a couple of months, going bungee jumping and sky diving and white water rafting. You’re constantly pinching pennies and worrying about spending too much money instead of spontaneously doing whatever it is you want to do.

I’m certainly not advocating going on spending binges. Eating at 5 star restaurants every night. Staying in $500 a night hotels. Going on expensive guided tours in Europe. I think there is value in traveling cheaply.

But the big difference is having the money to spend on those life experiences, the experiences and stories that will stay with you the longest. Those are the things you want all that extra money for. Trust me.

That’s why I think $40,000 is a good number to shoot for to finance your whole Year Off. You won’t be worrying about money at all. And you will have an absolute blast.

So last order of business……adding up all your debts, plus $10,000 for an emergency fund, plus 1 year’s salary in your retirement fund, plus $40,000 for your Year Off.

This is the total amount of money that you need to save. Write that down on your piece of paper.

That’s a lot of money, isn’t it? Need a drink anyone?

But don’t worry too much because you’re going to equip yourself with the powerful tool of delayed gratification. If you have a high enough salary and you decrease your expenditures over the course of several years, you’ll be able to reach this goal of money saved, and you’ll be able to embark on your Year Off.

If you already have a good amount of money saved, that’s even better. You’re well on your way to financial independence and a Year Off!

As you’ll see in future blog posts, there are ways to greatly decrease the total amount of money you need to save, so don’t worry and just read on!

And stop spending so much and start saving :).