Good Monday Morning! Instead of a math classroom conversation, I am making today’s Math Talk Monday about the math of a teacher’s life. Today is my first day back at work and for the first few days, we don’t have any kids. So I am taking this time to think about my foundation as their teacher. I have to be in a good position in order for our class to be in a good position. I get the sense oftentimes that teachers are expected to not be good at money or not have a lot of money. We perpetuate this myth that teachers are destitute, but it doesn’t have to be this way! We aren’t making the big bucks, but we can be smart with the bucks we do make. I’ve put together a teacher specific list of steps to take this new school year to improve your finances. Share this with anyone who is a teacher!
1. Create a Project on Donor’s Choose
I am hugely against teachers spending their own money on classroom needs. It is generally done and generally expected in our country. Teachers already are paid lower than the average professional with an equal level of education. And then they are expected to buy the supplies necessary for doing their job. This is just wrong! One way to avoid paying out of pocket for items your administrators won’t buy you is Donor’s Choose. Donor’s Choose is a non-profit charitable organization, meaning the donors who buy you the items for your classroom can take a tax write-off for charitable contributions.
In three years of teaching, I have had four projects funded. I have had a $2000 project funded but I try now to keep my projects to under $1000. I love Donor’s Choose because of the control it gives me over my own classroom. I don’t have to change my plans because an administrator claims we don’t have funds for supplies. This is really important for me as a high school teacher because people, including admins, think that you don’t need markers or construction paper for teenagers. I am trying to keep them engaged in their least favorite subject, math; I need more markers, crayons, and construction paper than you could possibly imagine!
2. Open a 457b Account
Did you know that teachers (and other public servants) have access to an additional retirement account that isn’t available to the public? And did you know that it has better terms than any 401(k), 403(b), or IRA? The 457 account is named Deferred Compensation and functions in this tax year just like any of those other retirement accounts. Contributions lower your taxable income. BUT – and this is a big but – you don’t have to wait until you are 59.5 to access the funds! All you need is to separate from service to your employer. So you can quit or get fired and you have (almost) immediate access to those funds.
Compared to the 403(b) options in my district, the 457 is a dream boat. Ohio’s 457 plan has access to several Target Retirement Funds but also 2 awesome Vanguard index funds at half the market price: the Vanguard Institutional Fund is the S&P 500 (Warren Buffet’s preferred index fund) and the Vanguard Total Bond Fund. At Vanguard, the going rate for index funds is .04% but they are available for .02% in the Ohio 457b. That’s a pretty awesome discount. These funds are all you really need to design a well performing, low cost portfolio.
If you do not have a 457 account open, you need to open one immediately. All you have to do is visit the website and you can set it up yourself. If you are already contributing, consider increasing your monthly amount. It is an awesome retirement planning tool, but also a great way to hedge against the unknown. It doubles as an emergency fund.
3. Open your own 529 Account
If you have children, you might already been contributing to a 529 plan on their behalf. 529’s are a great way to save for college. There is a state tax advantage and low cost investment strategies available. But did you know you can open a 529 for yourself to cover continuing education? In many states, teachers must complete continuing education hours in order to renew their license. This cost is the individual teacher’s responsibility. In Ohio, for example, a teacher needs 6 semester hours of education related courses to renew a five-year professional license. If you plan to take courses at a local university for any reason at all, you can use a 529 account to pay for those costs. This allows you to escape paying state taxes on those funds.
You don’t have to invest money meant for your own education through the account. All you have to do is keep the contribution in cash. You take the money from your regular savings, put it in the 529, then take it out again to pay for the continuing education cost. This extra step could save you hundreds in taxes, depending on your state and your approach to continuing education.
4. Open a Travel Rewards Credit Card
This summer might be almost over but there’s always next summer! The first person I ever met who did “travel hacking” was a teacher. Travel hacking refers to opening credit cards with significant signup bonuses and using the points as airline redemptions. Since you have 2-3 months of travel time ahead of you next year, you NEED to take advantage of this, teachers! You can travel for much cheaper than you have been, if you’re just smart about it.
The top card right now would be the Chase Sapphire Preferred card. If you can spend $4000 in 3 months, you will get 50,000 bonus miles. This will cover a plane ticket for you and a partner, or heck two solo trips for you while everyone else is working next summer!
If you can’t spend $4000 in 3 months (don’t put yourself in debt just to get some miles) there are other awesome cards, from Chase even. I’m not able to spend $4000 in three months right now, so I just signed up for Chase Freedom Unlimited. It earns 1.5x miles on all purchases and has a 15,000 mile bonus for just $500 spent in 3 months. This is much more manageable for me. This card also has 0% APR for 15 months which is ideal for any teacher who makes purchases or travels on behalf of their school district. Often districts are slow to reimburse. I myself have had to take out money from my savings in order to pay for travel expenses on my credit card because my bill came due before the district reimbursed me.
5. Do a student loan check in
How long have you been paying on your loans? You almost certainly qualify for Public Service Loan Forgiveness, but does it make sense for you? Or does Teacher Loan Forgiveness make more sense? Should you keep paying the minimum to get that forgiveness or does it make sense to accelerate your payments and get out from the weight of that debt? There are probably non-profits in your area that will help you figure this out. You can do it yourself with a spreadsheet or undebt.it. If there is a possibility of you applying for PSLF, go ahead and fill out the paperwork to get your employment certified. It’s better to do it now than at the end of 10 years. No matter what pathway works best for your situation, don’t delay figuring it out. Take charge of your debt and you will feel more empowered in other areas of your finances.
6. Calculate Your Net Worth & Check your Credit Score
Know where you stand. Stop buying into the idea that teachers are poor public servants. You, too, can build wealth. And tracking your position is essential to making an improvement. You spend so much of your time at work looking at student data, spend 30 minutes or so looking at your own personal data and using it to set some goals.
To calculate your net worth, write down all of your assets – bank accounts, home equity, investment accounts, retirement accounts. Don’t forget to include your pension fund in this calculation. I include it because that is money I have contributed from my pay check. Add up all your assets. Then write down all of your liabilities – all loan balances. Add up your liabilities. Subtract the liabilities number from the assets number, and you have your net worth! See a negative number? That’s OK. Lots of people have a negative net worth. Mine stands at about -$66,000. If you’re unhappy with a negative number, what are you going to do change it? Take action!
To find out your credit score you have an infinite number of options compared to a few years ago. Three of my credit cards will tell me my credit score. I also am logged into nerdwallet.com which sends weekly updates. Your credit score is another measure of your financial health. It’s especially important if you want to make a big purchase soon that requires a loan (house or a car). You might want to improve it before you head off to talk to a mortgage broker this school year.
7. Plan to contribute to an FSA at the next open enrollment period
Generally your FSA or HSA contributions would already be determined for the next few months but open enrollment is probably coming up for you in the late fall. My district’s open enrollment period is the month of November. An amazing way to save money on purchases is to use an FSA or HSA to pay for medical expenses. You will save significant amounts if you are in the 22% tax bracket, but it’s helpful for anyone at any tax level. Union leadership gives this straightforward advice not to bother with an FSA because you lose the money if you don’t use it. But I bet any person spends at least $100 a year on co-pays and eligible medical purchases. If you spend $100 on anything medical, you should open an FSA to that level. Any dollar saved is worth it! I myself am planning to still contribute $400 to my FSA even without having a surgery to recover from next year. FSA’s cover contacts and dental work. Since a year’s supply of contacts is $240 and our dental deductible is $75, I will easily spend $400 in the next calendar year.
You may be able to use an FSA to pay for childcare. Check your district’s benefits guide to find out what you have available to you. If you have an HSA option, you should try to contribute as much as you possibly can and let that grow in an investment account. You never know what will happen in the future.
Think about it! Don’t miss a chance to save some money.