A Money Guide for New (and not so new) Teachers!

 

Congratulations, you’ve just been hired to teach!  Now the bad news--you need to get good at money or you’ll work until you're 100 and be broke the rest of your life.  Here’s my little money guide.  I started out just like you and will retire comfortably at 50.  However, things are a bit tougher now.

Step 1: Be frugal, live below your means, and stick to a budget!  I hate to break the news to you, but on a teacher’s salary, you can’t afford the newest iPhone, designer clothes, a fancy new car, or eating out all the time.  Do NOT go into debt purchasing these things or you will never get ahead.  If you have high interest debt, pay it off as fast as you can.

Step 2: Make more money.  If you know you are going to stay in teaching, get your master’s degree ASAP.  Don’t spend a ton of money on it and don’t go into debt getting it.  Make sure it is an accredited program.  For example, Fort Hays State University has a very affordable, online, master’s degree.  When you earn your master’s degree, you will move way over on the pay scale.  After you get your master’s (not before), begin taking ALL the PD classes that you can, and as fast as you can.  You’ll keep moving further over on the pay scale.  Soon, you’ll be making a respectable salary!  Get a summer job!  Sorry, you are going to need to work summers until you are making more money.  I mowed lawns my first three summers of teaching.  Careful with gig-driving jobs, once you figure out the wear and tear on your vehicle, you might not be making much money.  Do the math!

Step 3: Save!  Sorry, your PERA pension will not be enough.  I cannot emphasize how important this step is.  If you delay this step, you’ll likely be working well past retirement age and with much less income.  Try to save 15%, or more, of your salary each year.  Where should you save (hint: not your bank account)?

* Young teachers making a low salary, should consider starting with a Roth IRA.  Go with a low cost brokerage, like Vanguard, and call them for assistance setting up the account.  Selecting the Target Date Fund, that matches your approximate retirement year, is a prudent choice (i.e. Vanguard 2055 target date fund.)  By using a low cost brokerage, like Vanguard, you’ll keep more of your money!  The high fees, charged by other brokerages, will eat up your retirement!  You can invest $6,000/yr into your Roth IRA.  Each month, you can have money automatically transferred from your savings account.  Vanguard can help you set this up.

* Once you are making more money, consider setting up a PERA Plus 401k.  This is above and beyond your pension!  Again, the target date fund that matches your approximate retirement year is a prudent choice.  Why a PERA Plus 401k? Because of its super low fees!  With a fee of only .1%, you’ll keep almost all of your contributions and earnings!  You can invest up to 19.5k/yr.  Monthly contributions will be automatically withdrawn from your paycheck and you’ll never notice the missing money!

* If you are fortunate enough to fill up both of these buckets, or you plan to retire early, consider setting up your 457(b).  You can withdraw from your 457(b) as soon as you separate from your employer, with no penalty!

Things to avoid:

1. A 403b. Salesmen will show up in your teacher’s lounge and try to sell you a variable annuity.  RUN as fast as you can.  They have high fees and large early surrender penalties.  

2. Saving for your kid’s college before saving for your retirement.  Take care of yourself first.

3. Starting late!  Compounding interest has been described as the 8th wonder of the world but it needs time to work!  Start small but start early!

4. Wasting money on whole/universal life insurance.  Get a term life policy instead.  Put the savings into your Roth IRA!

5. Buying a home you cannot afford.  You may be better off renting.

So, that’s it, follow these steps and you’ll be well on your way to a comfortable retirement!

Good luck and welcome to teaching!

Ben

Nothing presented is to be construed as investment advice. Investment advice can be secured from a vetted Certified Financial Planner (CFP®).When working with a CFP®, it is recommended that s/he sign a Fiduciary Pledge. More information, including questions to ask a planner and a downloadable Fiduciary Pledge, can be found here: https://403bwise.org/education/professional