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How to Use Your Gap Year to Get Ahead Financially

Nina Rodríguez

Staff Writer

11 min. read

For students considering a gap year between high school and college, the benefits (and costs) can be big factors in the decision. With the right planning, those experiential benefits don’t have to come at the expense of long-term financial wellbeing.

Gap year students may not be flush with cash, but what they do have on their side is time — and lots of it. Harnessing time means young people can capitalize on the power of compound interest, build a credit history from scratch without the pressure of student loans, or simply sock away savings to support their future selves.

Here are some tips on how to use a gap year to your financial advantage:

In this Article: 

Explore While Your Money Works for You

Ben Watson, CPA and chief financial officer at, took a break before college because “I didn’t know what college was going to do for me aside from rack up a lot of debt. I had spent my whole senior year of high school deciding what I wanted to do instead of going to college right away.” 

The pursuit of personal and professional growth is a clear value to consider when it comes to gap years. Watson says you can “use a gap year to help develop your goals in life rather than a break from them.” And that can include your personal finances. 

For Matt Frankel, personal finance expert at The Ascent, a Motley Fool site, “to get ahead financially during a gap year, you need to do three things – work, keep expenses low, and have the financial discipline to save money.” Here are some ways to start saving and that will allow you to step up your financial game even while doing a gap year.

Don’t settle for low interest

Getting a savings account with a high interest rate allows you to make your money work for you while you keep saving. Compared to traditional banks that commonly offer interest rates of 0.01%, there are an increasing number of online banks and other financial institutions offering rates of as high as 2% or so. Many banks and credit unions offer daily interest compounds on top of the attractive rates, so the money grows faster. Frankel says 2% interest might not sound like much, but if you are a disciplined saver, it can quickly add up in relatively short order.”  

Even if there isn’t a ton of money in your savings account during your gap year, parking that money in a place where it will earn for you is a good idea. If you received money as a graduation gift or family has provided college funds to you, this is a great way to make the most of it before you spend it on school.

With a variety of financial services, low fees and high earning potential, online-based banks usually have higher interest earns, since they have lower operating costs. Essentially, the bottom line is your money will work much harder for you in a high-yield savings account than in a traditional savings account.

Keep the long-term in mind

If you have some money saved up (no quantity is too small), and you want to diversify your savings, you can also think about getting a retirement account. 

Ted Rossman, industry analyst on personal finance at recommends to “get a very early start on saving for retirement by opening a Roth IRA account. This will allow you to take advantage of decades of compound interest.”

But why is it that important to earn compound interest? Compound interest calculates the interest earned over time, combined with the amount you invest. Essentially, this means the money you put in the account earns interest, which in turn adds to the balance that accrues new interest, leading to more money over time.

Imagine someone who opens a retirement account at the age of 18, with an initial deposit of $200 and an interest rate of 5%. After the first year, the account will be worth $210. The next year, the account will earn interest from the $210 the account is worth, meaning it will have $220.50. By the third year it will have $231.52. The fourth year, the account worth will be $243.10. 

So by the time this person is 22 years old, the account will have accumulated $43.10 on top what they invested in the first place. And by 30 years old, that person will have $159.17 more than the initial investment. Meaning that in 12 years, the person will have $359.17 saved, after only depositing $200 dollars.

Thinking about getting a retirement account now, can help you work toward creating financial stability for the future.

One feature of a Roth IRA account, unlike with a traditional 401k, which can be attractive to younger savers, is money that goes into a Roth account is taxed when it goes in, so the withdrawal later in life comes out without any additional taxes paid.

Simon Nowak, CEO of 3 Credit Scores, says that when your goal is to start building toward retirement, you need to be patient for the long term. Since any withdrawals made before you are 59 ½ will include an early withdrawal penalty, a Roth IRA is definitely a long-term saving/investment play.

Consider how the stock market might work for you

Investing in the stock market could also be beneficial for your financial stability in the long run. 

Leah Bourne, from The Money Manual, says “if you take advantage of not only saving but investing at a young age, a world of opportunities is going to be open to you. The stock market is key.”

Get knowledgeable in this matter and understand how you could start investing online, making sure that you are not over-investing. You can start with as little as $5. Bourne says an S&P 500 ETF, a fund designed to track the S&P 500 stock market index, is always a safe bet. “Say you invested in the S&P 500 10 years ago. You would have seen an over 180% percent return now after 10 years thanks to compound interest. You wouldn’t have needed to invest a lot to see a real and meaningful return on your investment,” Bourne says. 

Experts also recommend that having a strong financial plan includes all of the options above: savings account, retirement account, as well as investing in stock. But one should not replace the other, and they all should be treated differently. In addition to the benefits that come with making your money work for you, these are good financial habits that will serve you well in the long run.

Build credit while enjoying your gap year

A credit card could be another way you can plan for the future while taking a gap year.

“Getting a credit card early – and using it responsibly – will give you a leg up from a credit card standpoint,” Rossman says. Think about building good credit young, since this will help you later down the line. 

While your peers are making progress on their education, you can make progress on your credit score. As a student, budgets can be so tight that many avoid credit cards all together or can’t get approved. Your gap year is a great way to take on small amounts of responsible debt. Just make sure you can pay off whatever you charge, or you could do more damage than good. Your future self will thank you when you get approved for better cards and credit limits down the road.

Frankel adds that “a credit card is the easiest way to start building a credit history. A secured credit card, which requires a savings deposit, could help establish credit while encouraging savings at the same time.” Another option is to ask your parents if you can be added as a user to one of their credit cards. 

Bourne says it is better “to get a low limit credit card, something you feel comfortable handling – say $500 to $1,000. Start using it, but absolutely make sure you are paying off the balance in full at the end of the month,” to avoid interest. 

Rossman says: “Try to match your spending with the right cards (seeking bonus categories such as travel cards, dining, and groceries that match your lifestyle). Use sign-up bonuses strategically to put more money in your pocket and/or earn free travel.” 

Rewards cards and travel cards can pay off while on your gap year, with the added benefit of making it easier for you to build credit for the long run. For example, Mitch Glass, a travel blogger from Project Untethered, says that when he was doing his gap year, in order to find smart ways of using a credit card, he used credit cards with rewards and points to earn things such as free flights. So while your peers are in the classroom, you can be seeing the world, and getting attractive credit card points in the process.

Things to Remember When Preparing For a Gap Year 

Here are some other notes that the experts recommended in order to make sure your gap year can get you ahead financially while making it possible:

Spend intentionally

Spending intentionally your money is key when getting establishing financial habits and planning for your gap year. If you are going to need to pay for rent, going abroad, or going to have any expenses while experimenting your gap year, having a purpose for the money you are investing is a best practice.

Frankel says that “minimizing expenses is key. Live with your parents, or at least split housing with roommates.”  Morgan Taylor, Chief Marketing Officer of LetMeBank, says “the biggest thing to remember is this: If you don’t have a monthly income (say, you get paid everything up front for the year), you’ll have to be more careful. I recommend having two bank accounts. One as a free spending account for eating out or going to the movies and the other as a monthly bills account set up with autopay.”

Being careful and thoughtful with your finances will allow you to enhance this experience with long-term financial benefits. Glass says you need to “make sure you understand and get yourself personal finance software so you can be aware of where your money is going and avoid overspending.”

But intentional spending isn’t all about scrimping and saving. It means spending on things and experiences that will allow you to learn and grow from your gap year. That means avoiding spending $5 every day for a coffee from Starbucks, but allowing yourself to splurge on an outing or getaway with your friends for a new experience that could broaden your perspective and offer other educational benefits.

Estimate expenses and budgeting

When you are estimating expenses and creating a budget for your gap year, remember that every answer and scenario will be different for everybody, so think carefully to ensure this opportunity can help you grow both financially and personally.

Bourne says you should “sit down and map out what you want to do. And then you want to figure out a practical budget to make it happen. The keyword here is practical.” 

Jenna Truong, financial resident at Becoming Financial, says that to take advantage of your gap year you should carefully plan out how they want this year to work. “You need to ask yourself things like ‘where will you live? How will you commute? How would you cover all your logistics, cost and living expenses? How much do I need to save in advance? Would you need to find a job while doing your gap year?’” 

You can also do some research on the internet to connect with someone who is already in the country or countries that you want to visit and ask them about expenses and living costs, so you can estimate and create a budget accurately.

Get creative with gap year employment

Whether you are trying to do a gap year for traveling and to see the world, to save money to go to college or just trying to figure out what you want to do, working a part-time job gives you additional money to save while providing real-life experiences that you can add to your resume.  You can look for part-time job opportunities at a store you usually frequent, at your favorite coffee shop, or check online job sites

You might be able to find paid internships as well, for which you can check websites such as Workaway and LoPair. That could set you up for longer-term opportunities while earning money. There are also volunteering opportunities that make it possible to travel overseas. Volunteering experiences sometimes include living expenses. 

Watson says “there are even more opportunities now than before to work virtually from anywhere if you have an internet connection. Freelance writing, virtual assistants, blogging, etc.” Nontraditional ways to make money are more popular than ever. Platforms such as Upwork, Uber, Lyft, Shipt and DoorDash made finding side gigs easier. Also, you can take a look at these best jobs for traveling that travel expert The Points Guy recommends. 

Ethan Lichtenberg, writer at, did a gap year and he says that he “worked at a local bar to increase my savings account and have a base for future endeavors.” Getting a work and having cash flow while doing a gap year will allow you to feel free and save more, meaning that you won’t need to break the bank.

Look for scholarships 

If you want to fund your gap year and can’t pay out of pocket, there are scholarships available to support it, as well as scholarships that you can start applying for to go back to study, in case that is what you want to do once you complete the gap year.

“There are some gap-year scholarships to help ease the financial burden,” says Michael Micheletti, director of corporate communications at Freedom Debt Relief. In case you are looking for scholarships for your gap year, you can check online options on websites such as Gap Year Association, GoAbroad, and Go OverSeas.

Create a clear timetable

Setting a clear timetable will allow you to think strategically while enjoying your free time.  Micheletti says “many individuals credit the experiences they have had during their gap years as critical to eventually ending up in/getting a great job they really wanted. Whether you are earning money or not, finances will likely be limited.” 

Frankel says it’s important to create one “when you’re going to set things in motion for after a gap year, things like college applications, next steps in your life and career. It worked out for me because I had a predetermined plan to go back at a specified time, and stuck to the plan.” Thinking ahead of time will allow you to have everything you need to make this life-changing experience the best one.

Stick to the Plan: Get Ahead Financially During Your Gap Year

Hopefully these tips can help you make more informed gap year decisions that would benefit you and allow you to create financial habits for the long run. 

Remember, as Frankel says “if you’ve got the right mindset and discipline, it can be an effective way to start your financial life off on the right foot.”

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