A gap year might seem unthinkable for some but Noah and Becky share exactly how they navigated their gap year. Plus, Brad and Jonathan discuss emergency funds and your risk tolerance.
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Start With A Goal
Earlier this week, Rob Berger joined the podcast to share his journey. After drifting into a career as a top law partner, the life he had built was no longer fulfilling. Not even a gold club that cost $70,000 to join brought him happiness. So he decided to make a change.
At this point, he decided that his goal was to become financially free. Although becoming debt-free was a part of that journey, it was not the ultimate goal. The ultimate goal of financial freedom guided his personal finances choices in the future.
When you look at every decision through that prism, it really does change every aspect of decision making.
As you start to move forward, keep your end goal in mind.
The key is that you take action on these ideas, that you turn intention into action.
At the end of the day, you have to do something. Go through the process of questioning everything that you would never consider changing. A few might include moving to a new city, selling your car, or dropping cable. Give it a try, you might be surprised by your ability to adapt.
Rob brought up an interesting point about risk tolerance. As you build a bigger portfolio and surpass your FI number, there may be no reason to continue a high-risk investment strategy. Instead, you may want to rebalance your portfolio for less risk. And that is completely okay!
Keeping your portfolio invested at 100% equities will not give you a badge of honor. The key is to find the best answer to suit your own risk tolerance.
However, pulling money out of the market should not mean parking it in a checking account. At the very least, you should be taking advantage of a high yield savings account. For example, CIT Bank offers a high yield savings account with 1.85% APY if you put in a minimum investment of $100 and continue to save $100 each month.
Consider different options to fund emergencies that match your needs and your risk tolerance.
Taking A Gap Year
Noah and Becky recently returned from a gap year.
Before taking the gap year, both Noah and Becky were unhappy in their jobs. Noah works in the tech industry and Becky is a nurse. Although they weren't FI, they were ready for a change. So they took a year off and traveled around the country. They were able to visit many parts of the country and see part of Canada.
They have successfully transitioned back into new jobs after taking a year off to travel.
Logistics Of A Gap Year
The gap year started with a lot of logistics planning. First, they had a townhouse in Seattle that they decided to rent out with a property manager. They sold most of their belongings. Finally, Becky's sister offered to watch their dog for an entire year. After those basics had been thought out, they needed to work through several other problems.
Paying For The Trip
Their first priority was to pay for the trip without sacrificing their long term FI plans. Although they had a large amount of savings, they did not want to compromise their financial future for this trip.
In order to fund the trip, they started to slow down their investments. They built up liquid savings to fund a year of living expenses. They weren't sure how long this would last on the road, but it ended up funding their entire year with room to spare. In Seattle, they were spending around $60,000 a year. But they only spent $43,000 on the road. Now that they've moved to Silicon Valley, their annual expenses have increased to around $90,000.
While on the trip, their biggest expenses were food, car maintenance, and a Carribean cruise. As far as hotels, they spent over 230 nights in hotels but spent 1.5 million hotel points that they had earned via credit card rewards earlier. Additionally, they had family and friends to stay with along the way.
Related: Travel Rewards FAQ's
Another big concern for a year on the road was their healthcare coverage. They timed quitting their jobs for the end of the year. This made it easy to join a healthcare plan through the Healthcare Marketplace.
Based on the fact that they were not working for the year, they were able to control their income. They decided to do a Roth conversion in their road trip year to create an income that would keep them above the minimum threshold for Medicare. But they made sure to stay below a certain income in order to qualify for the maximum amount of subsidies. With the subsidies, they only paid around $10/month for their healthcare premium. However, they did not have to use their plans for the entire year.
How To Transition Back Into The Job World
The final concern was retransitioning back into the workforce. For Noah and Becky, they weren't concerned about finding a job because they both work in high demand fields.
When they were ready to get back into the workforce, they planned out a two month transition period. They stayed in an Airbnb in Colorado to start searching for jobs.
Noah landed a job first. In his case, he felt like it was an overall net positive step for his career. In different job interviews, he would bring up the gap year first. Generally, he got responses ranging from neutral to positive.
For Becky, the transition back was a little bit more difficult. She had to work as a contract nurse at a hospital in a demanding job. But after a few months, she found a clinic job that suited her needs better.
After months of travel, Becky and Noah learned that they can be happy pretty much anywhere.
You don't change as people regardless of where you are.
Now, instead of making a beeline for FI, they are trying to enjoy the journey more.
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