It’s easy to begin to develop a feeling of entrapment at a job or in school when things get tough. When things start to get stressful it feels like it’s time to just take a break from your life. A lot of teens after high school decide they want to take a “gap year” as a way to explore the world while they’re young. Some do this after college before entering the workforce. Now, some are doing this while in the workforce after feelings of burnout.
I spoke recently with guy younger than myself at a party who was a few years out of college. He was in marketing and I could sense he didn’t seem too thrilled about that and the thought of working the rest of his life. He was a pretty active guy and enjoyed being outdoors. I could relate and totally understood his frustrations.
Introducing New Ideas
I decided to bring up the ideas of early retirement/financial freedom and could see a lost gaze in his eyes develop. I had introduced a foreign concept. After all, retirement is really far away right? Sometimes it’s hard to introduce such a strange concept since we’re so used to thinking of it as something that happens in our 60’s rather than in our 50’s, 40’s, 30’s or even our 20’s!
Instead, he started to shift the conversation to taking a year off here and there. He called it an “occasional sabbatical“.
What he was talking about was taking time off randomly for a year at a time – a gap year. A hiatus from his career to travel or do however he pleases.
While it really does sound like a good idea at first thought I couldn’t help but wonder, “How much longer will that chain him down to the job he doesn’t seem to like?”. After all, even our daily habits can cost us years.
Is a gap year the answer?
It depends. How do we value our younger years to our older years? Are they more important? The gap year is a wonderful idea in theory. After all, we get to take a year off and travel the world or do as we please. Sticking it to the man and not letting the big corporations control us! But in doing so, it can come at a pretty large cost. Especially earlier in our lives.
How much does it actually cost us?
Let’s say, for example, we were making $50k per year and spent $25k in expenses for those first years in your career. After taxes with the current tax setup we would bring in around $40k. That leaves us with a savings of $15k per year. Great start!
Let’s assume 4 years into our career we were fortunate enough to save all of that $15k per year. That comes out to a whopping $60,000 saved! If it was in investments at a 7% return then we’d have around $71,000. Now we have all this money working for us!
Cue the gap year!
Now we’ve taken a wonderful gap year. We’ve come back refreshed on top of the world, but some things have changed since we last worked.
- It took 6 months to find a job since we left and had a hard time justifying the time off to an employer.
- We lost experience rather than gaining it making us less valuable, but luckily still found a job at $50k.
- Ended up spending $30,000 that year and a half brought of our savings down.
- Since we invested we’ve recouped roughly $7k bringing the total savings back to $48k.
What could we have saved instead?
Since we decided to take a gap year bit into our savings. Now, a year and a half later we have a total of $48k saved. If instead, we decided not to take a gap year our numbers would obviously be a little better. The numbers would reflect a $103k in savings had we decided not to take a gap year! It would be OVER DOUBLE had we continued to work, save, and invest. Plus, we would have still had time for vacation. Probably right around the time where the promotion was due.
Cost in the long run
Are you ready for this? I hope that the guy at the party is reading this. Let’s add it up.
Total Cost = 103 – 48 = $55,000
Right off the bat, it cost us $55k taking that year off. Not a great feeling if we want to retire earlier, but we’ve got plenty of time – right?
That money lost would have been earning interest somewhere had we been a thrifty investor of the overall stock market. To make these calculations simple, I’m going to assume we never made any more money and kept the same savings. In our scenario it’s been almost 6 years since we graduated and we’re assuming we’re now 28 years of age. Had we not taken a gap year and stayed the course we could have achieved financial independence by 47 years old.
When would we retire with that one gap year?
By 50 years old assuming the same spending patterns. We lost 3 years because of that gap year. Honestly, it was probably more since we likely had a raise in that time and that can have ripple effects in the term of our career. That 1.5 that we wanted for a gap year ended up costing us 3 years down the road. That’s twice the amount of time of freedom and likely more due to the ripple effect of the possible missed raise. Had we taken multiple gap years in our career it would have just kept putting us further back in multiples.
How does that gap year look now?
It’s not so cut and dry as the scenario we laid out, but it still hurts to see how much time we could have saved by continuing to work. Our health and well-being should always prioritize work, but it’s important to be mindful of the decisions we do make and how they can effect us down the line. I think gap years are great and have a place in people’s lives, but when thinking about financial freedom I can’t help think of the costs.