Gap years appear to be soaring in popularity lately. One survey found that the number of students taking a gap year between high school and college rose from 3% in 2018 to 20% in the 2020-2021 school year. Granted, the COVID-19 crisis surely played a role in that, but the idea of taking a break before, during, or after college is one that many students can relate to.
Obtaining an education involves a lot of hard work. From long days in the classroom to late-night study sessions, the rigors of academia can take their toll. And it can carry a hefty price tag. It’s understandable that someone might want to take a gap year before they start college or after they finish college to regroup before they begin working.
There are a lot of benefits associated with taking a gap year, but getting ready for a year off requires quite a lot of financial planning to make this choice sustainable. Keep reading to learn:
• What is a gap year and what are its benefits?
• What are the typical expenses during a gap year?
• How can you save for a gap year?
What Is a Gap Year?
Before diving into how much to save for a gap year, it’s helpful to understand exactly what a gap year is. There’s no one clear cut definition of a gap year, and everyone can choose how to spend theirs differently. That said, essentially a gap year involves taking a year off from school or work to travel, do an internship, take on a temporary job, volunteer, develop a skill, or do a combination of those activities. Some students design their own program; others sign up with an organization that, say, leads them on travel or volunteer projects.
More often than not, people take a gap year between when they graduate high school and start college, but it is possible to take a gap year during college or after graduation but before starting a job or going to graduate school.
A gap year can give someone the time they need to discover what they want their next move to be, to rest, to learn about an area of interest, or to simply get out of their comfort zone.
What Are the Benefits of Taking a Gap Year?
Some parents may look down on the idea of a gap year, fearing that their child won’t get “back on track” with their studies or post-grad life. But there are many benefits associated with taking a gap year.
• Time to rest and recharge. After many years of academic pressure, some students need a year off to recover from burnout before they start their next big endeavor.
• Room for discovery. Students who aren’t sure what path they want to take next may find that taking a gap year gives them the opportunity to discover or deepen their interests and formulate next steps.
• Can explore passions. If a person knows they’re interested in a certain industry or job role, they can spend some time interning, pursuing a fellowship, or researching that career path before they pursue a degree toward that job.
• Develops independence. A gap year can provide the opportunities young adults need to become more self-sufficient. That could mean traveling solo or taking on a job in a new town, not to mention getting better with money management.
Is a Gap Year Beneficial Financially?
If you’re contemplating taking a gap year, it’s natural to wonder how much to save to make it a reality. You may also be curious if this year could be a boost or a bust for your finances. In truth, a gap year can be beneficial financially and in other cases it can be financially damaging — it just depends on how the person chooses to spend that year. For instance, if you are working at a local business while living at home, you might really plump up your bank account. If, on the other hand, you go on a gap-year guided tour of another continent, that could cost $10,000, $20,000, or more.
There is some concern that gap years can hurt someone’s overall lifetime earnings. By pushing off entering the working world with a college degree in hand by a year, they can lose a year’s earnings as well as a year’s progress towards a higher paying job.
That being said, someone may spend their gap year interning, working as a fellow, or finding other ways to earn income or boost their resume. They may find their efforts propel them forward financially or at least help them break even. On the other hand, if a person spends the year traveling and relaxing, their finances might take a major hit if they don’t plan and budget appropriately.
Typical Expenses to Prepare for During a Gap Year
Parents may not be able to (or eager to) fund a child’s gap year, so a student can benefit from preparing to pay some or all of their expenses. Saving in advance or working part-time during the gap year can help make it a reality. (Planning for a gap year can actually be a great way to get your finances in order and learn how to budget.)
Here are some of the expenses to consider:
• Rent and utilities or other housing (say, youth hostels if you are traveling)
• Travel costs
• Entertainment (movies, concerts)
• Personal-care products
• Health insurance
• Medical costs
• Car insurance
• Cell phone/data plan; internet access
• Student loan payments, if applicable
• Credit card debt payments
• Gym membership/fitness costs
Financial Tips to Save for a Gap Year
Now let’s take a look at how to save for a gap year. The very act of planning a gap year can be a great exercise in money management for college students; it will definitely give you a new perspective on saving and spending.
Budgeting While Planning a Gap Year
Budgeting for a gap year takes quite a bit of forethought and planning regarding your personal finances. It’s a good idea to plan for a gap year a full 365 days in advance to make it easier to build up a savings fund. It can be helpful to put your cash into either a savings account, money market account, or CD to gain interest and help your funds grow.
You might want to determine how much you need to save over the next year, divide that amount by 12, and then add that amount into your budget so you can set the money aside each month. This can be a great time to familiarize yourself with different budgeting techniques (like the envelope system or the 50/30/20 budget rule) and see which one suits you best.
Getting a Job or Internship
Getting a part-time job or a paid internship while in school can make it easier to save for a gap year. Your school may have an online board where you can scan for opportunities. You might also consider a side-hustle, whether that means selling photographs you took while hiking or doing a weekend shift at a local coffee shop.
Cutting Unnecessary Expenses
Remember that reference above, saying it was a good idea to budget for a gap year? Now it’s time to up the ante. You can take a cold, hard look at your budget to see where you can cut your spending (hello, subscription services and those pricey daily smoothies). The money you save can be put towards your gap year fund.
Selling Items You No Longer Use
From clothes to workout equipment to electronics, most of us have things we simply no longer use. If you’re trying to fund a gap year, you can cut the clutter and make some extra cash by selling this stuff. You might offer items up online (eBay and the like) or organize a yard or stoop sale.
Reduce Credit Card Spending
Credit card debt has a way of snowballing and getting very expensive. With credit card interest rates around 17%, owing money on your plastic can be a dangerous thing. Aim to only use your credit card for purchases you can afford to pay off right away. That way, you can use any cash-back and travel-point bonuses to help fund your gap year without carrying a balance. It’s wise to focus on managing your money in a way that doesn’t require relying on a credit card.
Consolidate Credit Card Debt
The above strategy may not be possible if you’ve already racked up a good deal of credit card debt and are feeling as if you are in financial trouble. (Yes, this can happen quickly, even if you’re a student who’s only had a card for a short time.) You may find that consolidating multiple sources of credit card debt can help you get a lower interest rate (which saves money) and streamline your debt, making it easier to pay off.
For instance, you might find a balance-transfer card that offers breathing room thanks to an introductory, interest-free period. Or perhaps you would do better with a credit card consolidation loan that lets you pay off the debt and then pay back the funds at a lower interest rate. If you need guidance, consider talking with a debt counselor at the non-profit NFCC (National Foundation for Credit Counseling).
Cook at Home
Eating out will almost always cost more than eating at home. To save extra cash, get comfortable in the kitchen and build your meal-prep repertoire. In addition, you might start making your own lunch; those popular salad bars can be a budget-breaker if you go often.
Recycle, Reuse, Rewear
One way to save big is to be planet-friendly. Did you know the average American spends $100 per year on bottled water? Buy yourself an insulated reusable water bottle in a color or design you love, and use it.
Also consider that each of us typically spends almost $2,000 on clothes per year. Commit to wearing what you own or perhaps shopping second-hand (there are plenty of cool things to be found at thrift and vintage stores) to whittle that expense way down.
Think Carefully About Big Purchases
If you’re planning for a gap year, you may want to slow your roll when it comes to making big purchases. Upgrading to the latest mobile phone or buying a premium mattress as you enter adult life may seem enticing right now. However, if you delay gratification, you may be closer to making your gap year dreams a reality. Better money management can sometimes mean knowing how to say “no” to things you think you have to have.
A gap year can be a great way to intern, explore, volunteer, destress, and more. But it typically isn’t free. If you want to enjoy this kind of experience, you likely need to save more and spend less. Yes, this can help your gap year become a reality, but it has another bonus: It teaches you money management skills that can last a lifetime.
On the topic of money management, the right bank can make wrangling your finances so much easier and more efficient. For example, when you open an online bank account with SoFi, it’s super convenient and your money can grow faster. Set up direct deposit with our Checking and Savings, and you’ll earn a competitive APY. Plus, you won’t pay any account fees. That can help boost your savings for your gap year and beyond.
How much money is needed for a gap year?
How much money you need for a gap year depends on your goals. For instance, if you want to travel the world during that year, you will require a lot more money than if you plan to live at home and intern in an industry you’re interested in.
Can taking a gap year help you save money?
Usually a gap year doesn’t help students save money, other than the fact that no tuition will be due that year. The exception would be if you live with your parents during your gap year and work during that time.
How can a gap year hurt?
A gap year can hurt someone’s lifetime earning potential. By delaying entering the working world for a year, the individual misses out on a year’s salary and career growth that can lead to a higher salary down the road. However, a gap year could also be a positive: It could involve an internship or connections that eventually lead to a dream job.
Photo credit: iStock/ijeab
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