A sabbatical? Yes, it’s possible!

A sabbatical? Yes, it’s possible!

You only live once. So why not live it to the fullest. Here’s how to go on sabbatical without ruining yourself financially.

Everybody has their own reasons for wanting a sabbatical:

  • To take a break from the daily grind
  • To fulfill a life-long dream or project, like humanitarian aid in a third-world country or spending six months discovering Asia
  • To get a taste of retirement
  • To go back to school full-time

Regardless of the reason, when you plan ahead, everything is possible!

Talk to your employer

Make sure your employer will allow you to take a sabbatical.

Legally speaking, they are not obligated to accept your proposal or keep a position open for you until you return.

If that is the case, you will need a plan B and find a new job when you get back.

The financial consequences are not to be taken lightly.

If you are unionized, check your collective bargaining agreement for the terms and conditions pertaining to a sabbatical. You may actually have more leverage than your non-unionized counterpart.

Deferred or without pay?

A sabbatical with deferred pay consists in setting aside a part of your salary in order to be paid during your leave.

This option requires mid- or long-term planning and no acting on a whim.

A sabbatical with deferred pay does have the following advantages:

  • You get used to living on a lower income
  • By lowering your income, you may pay less income tax

If your employer does not offer sabbaticals with deferred pay, you will then have to finance your leave yourself. This is referred to as a leave without pay.

How to finance your sabbatical?

The most important step is the financing.

You want to avoid falling into debt. You must therefore be able to survive despite not getting a salary for several months.

Saving up

To reach your objectives, you must prepare a detailed savings plan.

A good strategy consists in making automatic deposits into a sabbatical account.

Invest your savings in a TFSA , because your returns are tax free. When you need the money, simply cash out your TFSA without fear of paying income tax on it.

However, if your project is in the short term, invest in low-risk options.

Make it a priority

This means saying good-bye to a second car, a cabin in the woods or a trip to the tropical climes in winter… at least, for now.

Re-assess your debt reimbursement

To save for your project without falling into dire financial straits, get your advisor to help you determine whether or not reducing your mortgage or car loan payments is right for you.

Prepare a budget for expenses

Calculate all your expenses during your sabbatical and make a budget that you will have to respect.

That way, you will avoid unpleasant surprises and a rude awakening.

Depending on your projects, your expenses may actually be lower than what you are used to.

Cut your expenses

If you take advantage of your leave to travel, try to offset your expenses by:

  • Renting out your home
  • Cancelling your cable

A sabbatical to study?

If you plan on going back to school full-time, the Lifelong Learning Plan (LLP)  is what you need.

An LLP is alot like an HBP. You take a loan out on your RRSP to finance your studies and then pay it back over a 10-year period.

What about your insurance?

Whatever the project, call your insurance company to check whether or not your car insurancehome insurancelife insurance or travel insurance will cover you during your sabbatical.

Not being adequately protected during this period could cost you dearly…

What about retirement?

Do not forego saving for retirement to take a sabbatical.

Why? Because the loss of savings combined with the lost returns will take several years to recover without capitalization.

Talk to your advisor

Your advisor is the best person to help you make your dream a reality.

Note: This blog post is provided for information purposes only. In no way should it be considered as financial, legal or tax advice. For advice specific to your personal situation, always speak with your advisor. SSQ cannot be held responsible for any decision made as a result of reading this blog post.