Don't break down after a mid-career break

Most people make the basic mistake of not having a proper back-up plan

Financial trainer, Amit Trivedi, remembers how a few professionals, buoyed by the stock market boom, decided to start on their own in 2007-08. They formed a company, gave themselves fancy designations, hired a few employees and had a plush office. In less than a year, one of them had to go back to his job. The others realised their mistake and moved into a smaller office with lesser employees.

A mid-career break is a common thing. Often employees in their late 30s and early 40s feel that their careers have hit a roadblock. There are fewer promotions or salary increases and not enough job opportunities. They either want to take a simple break, retool themselves through further studies or start a new venture. Many women employees, who want to bring up their children, also take a break. All this requires clarity and proper financial planning.

Have a plan: What do you want to do? It's a question that needs to be answered well in advance. Many people take the break and start thinking about their next step then. If you are taking such a break, a month or two should be good enough. And the requirement for funds would be much lower, especially if it is double income family.

A longer-term break needs proper planning. "An employees' life is controlled whereas an entrepreneur's life isn't. Almost 90 per cent of the people get their business plans wrong. When preparing one, they think like a company. A company's business plans may require little changes as you are in a controlled environment. An individual's plans may have to constantly evolve to reflect ground realities," adds Trivedi. Think of the worst case situation, and accordingly, plan your financial needs. It is important to involve the family in the process. If there is a change in their lifestyle, they need to know that.

Plan finances: If you are going for a two-year course, have enough funds for three years, advises financial planner, Rishi Nathany. "One does not know when one will get a job after coming back from further studies. So, it is better to have the additional funds for the sabbatical goal," he says. It is important to remember that there will be no inflows, only outflows during the phase. Even if two people are working and one of them is taking a break, there will be a change in the lifestyle.

Differentiate between asset and liquidity: 'I have a house and a couple of properties as back-up' is a very common comfort for people who want to take a break. But, as Trivedi puts it, it is important to differentiate between asset and liquidity. If there is a problem, the back-up plan should not be to sell a property or jewellery to continue with the venture. Importantly, selling a property isn't quite easy. A property deal will take its own sweet time to go through. Also, if the buyers/brokers realise that the property is being sold by someone in desperation, you may not get the right price. It is important to ensure that you have money in the bank or liquid funds or other safe instruments that will provide you with liquidity during the emergency period.

Have clean books before quitting and continue like that: If you have equated monthly instalments for a personal or home loan, clear them before quitting the job. You really don't want a financial burden which will put further pressure on your expenses. As mentioned before, if you are starting a business, the initial months or at least a year will only see outflows. Having an additional burden will not help at all. You really don't want calls or recovery agents chasing you during such times. It will take away the entire focus from the venture. And lock up your credit cards once you have quit. "There are people who withdraw cash from their credit cards to meet daily expenses and their families don't even get to know. Its best to just retire the cards before you quit so that there is no temptation to make that extra expense," says a debt counsellor. Remember, interest rates on credit cards cost as high as four per cent a month and it can be a complete financial drain.

Have enough insurance: Pack yourself and family with enough insurance policies - health, life, accident, etc, so that there is no change in the lifestyle due to any unfortunate event. If you can, instead of going for an annual premium, go for a single premium product. This will ensure that there is no burden of premium payment during the phase.

A career break can help improve career prospects or it can give you entrepreneurial success. But ensure that you have tied up all the loose ends. A financial planner gives the example of a doctor who decided that he had enough money and stopped his practice at 50. Five years later, he realised that he didn't have enough back-up money and had to restart his practice. It's easier for a doctor to come back, not so much for an employee. Remember that.

BREAKING THE CODE

Often employees in their late 30s and early 40s feel that their careers have hit a roadblock. They either want to take a simple break or start a new venture. Many women employees, who want to bring up their children, also take a break

• If taking such a break, a month or two should be good enough. The requirement for funds would be much lower, especially if it is a double income family. A longer-term break needs proper planning
   
• If you are going for a two-year course, have enough funds for three years. It is important to remember that there will be no inflows, only outflows during the phase
  

 

It is important to differentiate between asset and liquidity. If there is a problem, the back-up plan should not be to sell a property or jewellery to continue with the venture
 

If you have equated monthly instalments for a personal or home loan, clear them before quitting the job
 

Have enough insurance policies - health, life, accident etc so that there is no change in the lifestyle due to any unfortunate event