What has been a right of passage for European and Australian students for over 50 years, gap years have recently gained traction among American teens too. (Just ask Malia Obama, who announced back in 2016 she would be taking a year off before heading to Harvard.)
While there is no one reason why someone might consider taking time off, the personal, social, and academic benefits of gap years are indisputable.
Some of these benefits could include:
Experience a different culture
Learn a new language
Develop new life skills
Credit toward your degree (in certain scenarios)
Improve Career Opportunities
So is taking a gap year a good idea? Studies say it is. But, there is one thing you should keep in mind before you take off on your adventure; your finances.
It’s important to remain aware of the financial implications of a gap year, because one things for sure, a great gap year isn’t possible without proper budgeting.
Budget! Then budget some more!
Budgeting is probably the top of the list of financial skills that you’ll need if you want to have a great gap year. Because you will be in charge of your finances for what might be the first time, you need to be ready to make the tough decisions that come along with financial independence.
The art of budgeting is one that easily helps you identify and rank your most pressing needs, then attach the amount that you can spend based on your income or cash on hand.
There are a number of different schools of thought when it comes to budgeting, but one of the most popular options is the 50/30/20 budget. The 50/30/20 method of budgeting divides your income into three categories: 50% for needs, 30% for wants and 20% for savings and debt repayment.
This method is a great way to attack your gap year finances because a gap year isn’t about saving 99% of your income for the future, it’s about experiencing the world in a way that won’t set yourself up for financial failure when you head off to college.
Pro tip: If you plan to travel abroad during your year off, consider selecting your destinations based on the cost of visiting, rather than your desire to see the location. Pay attention to exchange rates. Look for a country where less is more.
Seek out employment that works for you
You might need to get a job depending on how you are spending your gap year. If you are incorporating an element of travel, then you would definitely be spending quite a bit on transport, food, and accommodation. And if you don't have a pile of cash stacked somewhere that you can spend generously, then your next best option is to seek employment.
Many countries allow visitors to work while on a tourist visa. This is also known as a "working holiday." Another option is volunteering with a program like AmeriCorps, which not only offers a stipend and free room and board, but also a $5,775 education award you can use towards college expenses.
Pro tip: If you need an income to support your gap year travels, apply for a remote job! Remote work is on the rise, and many companies are now comfortable with their employees operating from a country of their choice. Think of remote work as having your cake and eating it too.
Save where you can!
Savings - it might literally save you. The term savings is very appropriate, especially when you consider what impact savings can sometimes have. While working during your gap year, irrespective of how much you earn, you should set some part of it aside.
You might run into certain sticky situations during your gap year which may require an influx of cash. Furthermore, whatever cash you have saved at the end of your gap year can be used in preparation for college.
However, the main lesson here is that you cultivate a habit of saving. This habit will come in handy while in college and even later in life. Make saving hassle-free by automatically allocating a set amount to your savings every month.
Dip your toe in investments
While you’re off learning a new language, learning how to drive on the other side of the road, or just learning to live on your own, consider learning the basics of good investments. While this may not be a gap year only financial management tip, learning about the foundations of an investment strategy is something you will benefit from immensely in the future.
If possible, you should also include your investment strategy in your budget so that you set cash aside every month. The process of wealth accumulation is one that you should begin as early as possible given that you are already earning an income.
Be wary of over-indulging
Debt avoidance is definitely one lesson that you do not want to learn the hard way. While there are good debts out there (an affordable car loan, a down-payment on a starter home) debts like personal loans, credit card debt among others are the ones that you went to avoid.
Your gap year is one year when you can easily fall into debt if you are not cautious. Spending so lavishly that you have to take money out of your college fund is one indicator that you’re in financial trouble.
As an adult, you may have to deal with a pricey car loan, expensive home loan, student loans, credit card debt, as well as a number of other debts. In this case, your interest rate and monthly payments may begin to get very serious.
This is why it is best to start living a debt-free life as early as you can, and in this case, from your gap year. Although, there might be a need to borrow money at certain times, but you should learn to make these instances as minimal as possible.
Provided you manage your finances well and you make the right choices, then your gap year could effectively be a period of financial breakthrough.
Guest Author: Marko Jovanovic is a lover of all things related to music and technology. Passionate traveler, fan of great programmers. A firm believer that a good teacher is forever a student.