Here at Master Passive Income, we all want to use passive income to quit our jobs. Once you are at that point to where you are ready to quit, what should you do with your vacation time when you quit your job?
I have the blessing of having many hours of vacation time saved up as well as the ability to earn many more as I continue to work for my job.
But what do you do with those banked vacation/sick hours that you committed?
What if you have 300+ hours of vacation time saved up from your job? Should you cash it out when you quit or should you do something else with it?
I have over 350 hours of vacation and sick time saved up, and I also accumulate 11.18 hours more every two weeks.
I know what you’re thinking, “That is a lot of vacation time!”
I completely agree, and believe me, I know that I’m very blessed with my job.
Not everybody gets this much vacation time.
But remember the goal is to quit working and not need the vacation time. So how can we best use this vacation time to our benefit?
Cashing Out Your Vacation Time All At Once?
If you were to cash out all of your vacation time when you quit your job you will get a good sized check for the balance of all your saved hours. But is that actually a good thing?
Do not forget that you have to pay taxes on all that money that you pull out.
What if all the money pullout puts you into a higher tax bracket where you have a higher tax income rate?
You Get Hit With Taxes When You Cash Out Your Vacation Time!
A good estimate is to take 40% out of whatever amount you think you’re going to get and believe it is going to go directly to the government in taxes.
If you’re like me, you hate paying taxes and try your best to avoid or defer them as much as legally possible.
I believe we should give to Caesar what belongs to Caesar and to God what is God’s. So I do not believe in cheating on your taxes but use every legal way possible to avoid or defer them.
I personally do not want to have 40% I money taking out of my pocket when I quit my job if I didn't have to. Maybe there’s another way to use these vacation/sick hours?
Possibly one way that I would not lose so much money and could possibly have more benefits on top of the cash that you will receive from your hours?
The Better Option For Your Vacation Time
Track with me here: the more hours you work the more vacation time you earn. The more vacation time you earn the more money you make.
Wouldn’t it be nice to still be employed, get paid your normal salary, and earn more vacation time, all while you have already quit working?
If you think about it, when you actually take vacation and spend your vacation hours you are still employed thus earn more hours by spending those same hours.
Since I earn 11.18 hours every two weeks, I could take a two week vacation, spend 80 hours for that to a vacation, and still earn 11.18 hours during my vacation.
So I actually only spend 70.72 hours for my two week vacation.
With that premise in mind, think of how you can use that to your advantage. Maybe save up all your vacation hours for when you quit your job and spend them at the very end when you’re ready to quit. Here is a list of great benefits to spending your vacation time:
- You accrue more vacation time when you spend it
- You continue to be employed
- You continue receiving insurance from your employer
- You still get a regular paycheck
- You still can put into your retirement or employer matching 401k
- You can get financing easier when you have a job
- You still have your job so if you change your mind, you have it to fall back on
Let’s say you’re going to quit your job on November 1 and that is the day that you will stop actually working your job. What you could do is put in for a very long two-month vacation in February for whatever reason you want to give.
If you have the ability to do that, you will have quit your job while continually getting paid for your vacation hours. On top of that, you are still earning more vacation time while you’re not even working.
Let’s say that you earn seven hours every two weeks for vacation time, and you take two months off. You would effectively earn 28 more hours of vacation time for those two months that you took off which will give you more time to take off.
It's Vacation Time!
Hope that doesn’t sound confusing, but if done right you can have an extra few months of paychecks coming in and not pay out so much in taxes. Get creative and think of as many different ways you can spend those vacation hours without having any trouble with your boss.