Wouldn’t it be nice if the world valued teaching monetarily the way so many say they value our profession and role in society? (Wouldn’t that be nice for any profession?)
Imagine a world where teachers earn $200k a year and summer breaks become a time for teachers to fully unwind/recuperate (not work second jobs) and to revise their curriculum.
You’d probably see more top notch candidates apply for positions. Maybe more competition to become a teacher.
Regardless of how we are valued, its necessary to learn how to still build wealth as a teacher.
Unfortunately, we don’t live in that world.
But don’t get me wrong, I don’t feel underpaid. Perhaps under valued at times, or desirous of more, but not underpaid (in comparison to other states).
In what profession do you get the benefit of a great pension (I teach in NYS), the pleasure to impact so many lives in a positive way, and to have summer vacation (kind of)?!? There are many perks to being a teacher.
Wealth accumulation is usually not one of them.
At least according to the general public.
How to Build Wealth as a Teacher
Let’s dive into that question. I’ve read about lots of ways to create wealth and reach financial independence. Some of these I am implementing myself or know colleagues who have used these tips to great success.
If you are just starting out and wondering how to get started on the right foot as a new teacher, check out the first part of this series on New Teachers.
Understand your salary to build wealth
Understanding your salary is the foundation of wealth building here.
This information is often found in your contract, if unionized. It will usually list what your starting salary is for your step (years of service), on a given year of the contract. Some contracts however, have an adjustment for number of credits and what type of degree you have (BA, BA +30, MS, MS +30, etc.).
Find where you fall on your contract and what you can expect to make this year.
This amount may also need to factor in additional pay for extra college credits, advanced degrees or other stipends for your normal position. Find this total.
For the sake of this post, let’s assume your base salary with credit hours and a Master’s Degree is $48,000.
You aren’t likely to see the full $48,000 after factoring in the cost of your health insurance, dental insurance, union dues, and taxes.
However, this is a good starting point to understand where you are and how you can build wealth with this income.
Assuming that you have an idea of your costs of living and keep it below your means, let’s plan to lock in your gross salary at $48,000 a year, no matter what.
This is going to be your salary every single year going forward. Okay, maybe small increases as needed but we are going to try to offset that with other income.
Keeping this set plan for income will help you live within your means and build wealth!
Pay yourself first to build wealth
The single most powerful thing you can do to build wealth is a combo move!
It’s paying yourself first and staying within your means.
I totally said single thing and then said two, but how can you do one without the other?
If you live within your means you should always pay yourself first! To pay yourself first you have to live within your means!
“The single most powerful thing you can do to build wealth is a combo move! It’s paying yourself first and staying within your means.”
Teach, Money, Life
How is this going to help me build wealth as a teacher?
Well, number one, it’s going to allow you to actually put money on the right side of the ledger for you and not just see all the fruits of your labor pass by you out the door. We want to keep and preserve as much of those fruits as we can!
By locking in your salary at $48,000 you are keeping your standard of living low and controllable. Setting yourself up for success by allowing your gap between investing and spending to grow each year as your income grows.
That’s why I wanted you to see how much you should get paid next year. The difference between that $48,000 and the $49,500 you will make next year is going to an extra boost to your wealth growing!
As your salary grows over time, be sure to increase your contributions to scale with this growth. That’s the whole point of locking your salary in low and pretending you only make that much.
How to Pay Yourself First
If you live within your means and can afford to take even 5% of your pre-tax $48,000 salary and invest it for the future, do so now! AS SOON AS POSSIBLE!
But where do I put it?
Most schools offer a 403(b) and/or 457(b) plan through their retirement plan providers/servicers. For instance, we have OMNI.
These types of accounts often (I haven’t found a place where they don’t) allow for pre-tax contributions to be automatically deducted from your paycheck before you can even see it!
Talk to your district’s business office about signing up and setting up payroll deductions.
Once you are signed up with the provider, choose investments that match your risk tolerance AND are low-cost! Look for low expense rations on target date funds or index funds that are offered. Then just set it and forget it (until its time to increase your contributions!)!
Compound interest is simply amazing and you’ll be so much happier if you get started early. Give it enough time and your money make earn more in a year than you actually earn from working!
Assuming you can afford to save 5% of your $48,000 salary, you are putting away $2,400 a year.
This amount won’t get you to financial independence or earlier retirement in most cases, but it is a great start! Building blocks to building wealth as a teacher! This is your step one. This is the bare minimum of what you’ll save each year you are teaching or working.
Obviously, all of this is based on if you can actually do this or not. Some people want to be able to allow their lifestyle to creep up a bit with their income. This can be dangerous, or it can be done the right way, as I will propose you do in the next section.
Building Wealth Turbo Charged
Lifestyle creep is one of the easiest way to erase positive wealth progress!
It’s very tempting as we earn more money to reward ourselves with more and more. To treat ourselves to a new toy or a more expensive car, or dinner out more frequently. This can be dangerous as it tends to have a stacking effect. One instance of lifestyle creep usually leads to more if it isn’t carefully constrained.
You definitely do not want to add much to your monthly expenses as this will slow your progress.
In my experience, a great step two that helps to build wealth as a teacher and avoid lifestyle creep, is to only use supplemental income for these kinds of lifestyle changes.
Any income you make outside of your main paycheck can be used for lifestyle creep, additional saving or investing or debt pay down.
Check and see what options are inside of your teacher contract first!
Some examples of things you can do to make a supplemental income include:
- Coaching sports
- Taking on a club or advisor position
- Teaching an extra class or having an extra duty
- Working a second job
- Tutoring
- Starting a side business
- Side Hustles!
Check out this post on 12 Amazing Online Side Hustles for Teachers!
Any money you make from these types of supplement income you can pick how to divvy up. Moreover, this is where true wealth building can occur!
We don’t want to deprive ourselves, so my wife and I stick to roughly an 80-20 split with this income. We save and invest 80% of this money we earn. The extra 20% goes to spending on things we truly value. They must pass our litmus test of bringing joy, multiple uses or a quality experience.
If you make an extra $10,000 a year after taxes, this works out to be saving/investing $8,000 and spending the remaining $2,000.
You could, use all of it to invest or to spend. However, I think you are best to find a balance between the two. Where your time and money is working for you and bringing your value to your life.
It is hard to always keep optimized and stretching your teacher’s salary, so if you are looking to turbo charge wealth building, you’ve got to increase your income!
Putting it all together
By planning to keep your usable income based off your current salary, staying within your means and divvying up part of your supplemental income for building wealth, you are going to be on a great path to wealth generation.
We did not get into specifics this post about how to invest or what debts to pay down first. We will address that in future posts and I will share some of the plans I follow.
Probably the hardest part of this whole process is applying it all to your life and situation. So much knowledge and information is out there on personal finance and building wealth but so few actually put it into practice.
This is because even with knowledge, it’s often a challenge to implement or we are fearful of change. We like learning about and hearing of others’ successes but we think “not us.” We come up with excuses and ways to weasel out of the hard work of bettering our lives.
If you aren’t sure how to apply this knowledge or what to share your journey with someone who can help keep you accountable, feel free to reach out to me on Twitter @money_teach. I’d love to help encourage, celebrate and guide you along a path to financial freedom and happiness.
Other Posts to Explore:
- Getting Hired Out of Student Teaching: My Story
- Our Top Money Leaks
- How to Stretch a Teacher’s Salary: 5 Actionable Tips from a Teacher
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