3430: Do This With Your Vacation Time From Your Job to Make More Money by Dustin Heiner of Master Passive Income - Optimal Finance Daily - Financial Independence and Money Advice

Summary5 min read

Podcast Summary: Optimal Finance Daily, Episode 3430

Title: Do This With Your Vacation Time From Your Job to Make More Money
Host: Diania Merriam
Featured Post Author: Dustin Heiner, MasterPassiveIncome.com
Date: January 21, 2026

Episode Overview

This episode explores a creative and strategic approach to maximizing the value of your accrued vacation time as you transition out of a full-time job, especially for those on the path to financial independence. Drawing from a post by Dustin Heiner, the discussion centers on how to avoid losing a substantial portion of your unused vacation payout to taxes and instead use it to your advantage—both financially and in terms of maintaining valuable employment benefits.

Key Discussion Points & Insights

1. The Traditional Approach: Cashing Out Vacation Time

Common Wisdom: Most people plan to simply cash out their unused vacation and sick hours when they leave a job.
Tax Implications:
- Large vacation payouts are taxed as income, potentially up to 40%, especially if they push you into a higher tax bracket.
- Quote:
  
  "A good estimate is to take 40% out of whatever amount you think you're going to get and believe it's going to go directly to the government in taxes."
  (Dustin Heiner, 02:05)
- While tax avoidance is not advocated, Dustin stresses the importance of using legal strategies to minimize tax liability.

2. The Unconventional, Optimized Approach: Use It Instead

Key Idea: Instead of cashing out, use your accumulated vacation as paid time off at the end of your employment.
- Put in for a long vacation before your planned quit date, using all accrued hours while remaining officially employed.
The Compounding Effect:
- As you use paid vacation, you're technically still accruing more vacation hours.
- Example:
  
  "I could take a two week vacation, spend 80 hours for that vacation and still earn 11.18 hours during my vacation. So I actually only spent 70.72 hours for my two week vacation."
  (Dustin Heiner, 03:32)
Benefits of Staying On Payroll:
- Continue earning a regular paycheck.
- Maintain employer-provided insurance coverage.
- Can keep contributing to retirement plans and receive matching.
- Maintain employment status, which can facilitate financial transactions (e.g., loan applications).
- Allows reconsideration if you change your mind about leaving.
Scenario Planning:
- Take an extended "final" vacation (e.g., a two-month PTO run) instead of immediately quitting; accrue additional PTO during that period and receive sustained pay.
Quote:

"If done right, you can have an extra few months of paychecks coming in and not pay so much out in taxes. Get creative and think of different ways you can spend those vacation hours without having any trouble with your boss."
(Dustin Heiner, 05:13)

3. The Psychological Side of Vacation Use (Host Reflection)

Host’s Personal Experience:
- Diania confides she once hoarded vacation time when she prioritized work above personal well-being.
- Felt that taking vacation created more stress owing to backlogs and a sense of falling behind.
- Saving vacation time was often a sign of imbalanced work priorities rather than prudent financial planning.
- Quote:
  
  "Upon reflection, having a ton of vacation time saved up is probably not a good thing. It's most likely a representation of an unhealthy relationship with work."
  (Diania Merriam, 07:43)
Wellness Perspective:
- Highlights Celeste Headley’s book "Do Nothing," emphasizing the irreplaceable value of free time for mental and physical health.
- Quote:
  
  "You can't put a monetary value on your free time because you're paying for it in mental and physical health."
  (Book reference via Diania Merriam, 07:56)
Changing Priorities:
- Diania now prioritizes health and relationships, underscoring the importance of actually using and enjoying vacation time.

Notable Quotes & Timestamps

On Tax Loss with Lump-Sum Payouts:

"A good estimate is to take 40% out of whatever amount you think you're going to get and believe it's going to go directly to the government in taxes."
(Dustin Heiner, 02:05)
On Earning Vacation While Taking Vacation:

"When you actually take vacation and spend your vacation hours, you're still employed, thus earning more hours by spending those same hours."
(Dustin Heiner, 03:26)
On Strategic PTO Use:

"If done right, you can have an extra few months of paychecks coming in and not pay so much out in taxes."
(Dustin Heiner, 05:13)
On The Cost of Not Taking Time Off:

"Having a ton of vacation time saved up is probably not a good thing. It's most likely a representation of an unhealthy relationship with work."
(Diania Merriam, 07:43)
On The Value of Free Time (Celeste Headley, via Diania):

"You can't put a monetary value on your free time because you're paying for it in mental and physical health."
(Diania Merriam, 07:56)

Timestamps for Important Segments

01:03 – Dustin Heiner introduces the challenge and sets the scene regarding unused vacation.
02:05 – Discussion of taxes on lump-sum vacation payout.
03:26 – Outlines how using PTO while still employed lets you earn additional vacation hours.
05:13 – Recaps the creative approach and benefits of not cashing out all at once.
07:43 – Diania’s reflection on the emotional and psychological side of vacation use.
07:56 – Reference to Celeste Headley’s message about the true value of free time.

Final Takeaways

Strategic Use of Vacation Time: Rather than cashing out, consider staying on payroll and using all accrued time off for maximum benefit.
Mind Your Well-being: Vacation isn’t just a financial lever; it’s a vital part of a healthy life-work balance.
Get Creative and Plan Ahead: Talk to HR or management to find legitimate ways to enact this strategy before quitting, and weigh the financial, procedural, and personal impacts.

This episode offers both a smart, tactical tip for those approaching financial independence and a reminder to value your own time above all.

Loading summary

Transcript6 lines

[00:00]
Northwest Registered Agent / Odoo Advertiser
When you're ready to start your business, Northwest Registered Agent gives you access to thousands of free guides, tools and legal forms. Everything you need to launch and protect your business in one place. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the US with over 1500 corporate guides. Real people who know your local laws and can help you in your business every step of the way. Plus, with Northwest, privacy is automatic. They never sell your data and handle all services in house because privacy by default is their pledge to customers. Don't wait, protect your privacy, build your brand and get your complete business identity in just 10 clicks and 10 minutes. Visit northwestregisteredagent.com ofdfree and start building something amazing. Get more with Northwest registered agent@northwestregisteredagent.com ofdfree.
[01:03]
Dustin Heiner
This is optimal Finance Daily. Do this with your vacation time from your job to make more money. By Dustin Heiner of MasterPassiveIncome.com here at Master Passive Income we all want to use passive income to quit our jobs. Once you're at the point where you're 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 my job. But what do you do with those banked vacation or sick hours that you committed? What if you have 300 plus 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's 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'll get a good sized check for the balance of all of your saved hours. But is that actually a good thing? Don't forget that you have to pay taxes on all that money that you pull out. What if all that money puts you into a higher tax bracket? 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's 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 don't believe in cheating on your taxes, but use every legal way possible to avoid or defer them. I personally don't want to give over 40% of my money when I quit my job if I don't have to. Maybe there's another way to use these vacation or sick hours. It's possible there's a way I won't lose so much money and could have more benefits on top of the cash that I'll receive from those 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're still employed, thus earning 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 vacation and still earn 11.18 hours during my vacation. So I actually only spent 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's a list of great benefits to spending your vacation 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 and 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 1st and that's the day that you'll 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'll have quit your job while continually getting paid for your vacation hours. On top of that, you're 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. I hope that doesn't sound confusing, but if done right, you can have an extra few months of paychecks coming in and not pay so much out in taxes. Get creative and think of different ways you can spend those vacation hours without having any trouble with your boss. You just listened to the post titled do this with your vacation time for your job to make more money by Dustin Heiner of MasterPassiveIncome.com.
[05:55]
Hank
Hey Sal, Hank, what's going on? We haven't worked a case in years. I just bought my car at Carvana and it was so easy. Too easy. Think something's up? You tell me. They got thousands of options, found a great car at a great price. Uh huh. And it got delivered the next day. It sounds like Carvana just makes it easy to buy your car, Hank. Yeah, you're right. Case closed.
[06:19]
Dustin Heiner
Buy your car today on Carvana. Delivery fees may apply.
[06:24]
Northwest Registered Agent / Odoo Advertiser
Imagine you're a business owner who has to rely on a dozen different software programs to run your company. Each one is expensive, overly complicated, and worst of all, none of them are connected. Now imagine a platform that could tackle all of your business management needs in one place. That platform you're imagining, it's Odoo. Odoo has all the programs you'll ever need and they're all connected on a single simple, easy to use software, giving you peace of mind that your business is always being taken care of from every angle. Odoo assists in accounting, marketing, inventory, hr, CRM, manufacturing, and everything in between through its user friendly interface and open source applications. Basically, if your business needs it, Odoo's got it. Odoo sounds pretty amazing, right? So stop wasting your time and money on those expensive disconnected platforms and let Odoo harmonize your business with simple, efficient software that can handle everything for a fraction of the price. It doesn't get much better than that. So what are you waiting for? Discover how Odoo can take your business to the next level by visiting odoo.com that's o d o o.com odoo modern management made Simple I used to be.
[07:37]
Dustin Heiner
One of those people that never used their vacation time, and this was when I only got like three weeks of vacation a year. During that time when I was stressed out and trying to figure out work, life balance, whatever that means, I would see articles urging me to take the vacation I've earned. It's part of my compensation package and it's important to take breaks. While that all sounded reasonable, in my experience, taking vacation was stressful. Emails would pile up, I would lose momentum, and it felt like I was creating more work for myself, as now I had to dig out from the backlog. When I was back in the office, vacation never felt like vacation. It felt like procrastination. But this was also during a time in my life where I prioritized work over everything else. Upon reflection, having a ton of vacation time saved up is probably not a good thing. It's most likely a representation of an unhealthy relationship with work. In her book Do Nothing how to Break Away From Overworking, Overdoing and Under Living, author Celeste Headley says, you can't put a monetary value on your free time because you're paying for it in mental and physical health. What's crazy to me about not using or enjoying my vacation time is that I so willingly and ignorantly gave my most valuable resources of time and energy to my employer without a second thought. Yes, they paid me for it, but it also cost me dearly in terms of my health and personal relationships. Now I live a life that's rooted in rest and free time, where my health and relationships are my top priorities. I've certainly come a long way from not using my vacation time, and that should do it for today. Have a happy rest of your day and I'll see you on the Thursday show tomorrow, where your optimal life awaits.