A Personal Finance Lesson Plan for Teachers

Dear Carrie,

I’ve been a public-school teacher for five years. I love my job and the kids but I’m really concerned about money, especially saving for retirement. Any special advice you can give teachers?

—A Reader

Dear Reader,

It’s great to hear that you love your job. Certainly no one goes into teaching to get rich, and yet I can’t imagine a more important and rewarding profession.

I’m also glad you’re starting to think about your future so early in your career because this is the perfect time to put your finances on the right path. As a teacher, you may have access to a number of unique and valuable benefits that aren’t available to workers in the private sector and it’s important to maximize them all. Here’s a quick overview of the steps you can start to take now to help secure your financial future, including retirement.

1. Start with a clear assessment of where you are today

Before you do anything else, figure out your current net worth. This simply means adding up what you own (your assets) and subtracting what you owe (your liabilities). Next, write down all your expenses and sources of income. The result is a financial snapshot of your current situation—and will be the benchmark you can use to measure your progress over time.

2. Set your goals

Next, spell out your goals. Perhaps you want to buy a house or save up for graduate school in five years. If you're carrying consumer debt, make paying that off an important goal. This will allow you to make retirement a high priority. Goals often change over time, but writing them down now will help you focus on your priorities and save and invest accordingly.

3. Amp up your income

Your salary is probably tied to a set schedule, but can you accelerate it by taking additional courses or getting special certifications? Do you speak a second language? Have a unique skill or credential? These can all bump you to a new salary level. Also think about side jobs such as tutoring—during the school year as well as over the summer. This can be a great way to raise extra cash for retirement or other goals.

4. Make a budget… for the entire year

When it comes to budgeting, I like the 50/30/20 rule: 50 percent of your income toward needs; 30 percent towards wants; 20 percent towards savings. If you’re not able to put a full 20 percent to savings now, start with a smaller amount and increase it every year as your salary increases.

And remember, whether you’re paid on a 10- or 12-month schedule, it’s necessary to budget with an eye to the entire year. After all, there’s no summer vacation when it comes to bills.

5. Build your emergency fund

Going back to savings, try to have a minimum of enough cash to cover three to six months of essential expenses—things like food, rent, and utilities as well as financial surprises like a car repair or needing a plumber. Keep this money in a stable account like a savings account, where it's easily accessible. If you don’t have that much saved now, make it one of your top priorities.

6. Get the right insurance

Teachers often have access to insurance benefits as part of their total compensation, so take the time to carefully review all your options. Start with health insurance and consider the tradeoffs between costs and coverage. If you’re eligible, a health savings account can be a great way not only to save for future heath expenses, but also to supplement your tax-sheltered savings. And don't forget about life and disability policies. You probably have some basic coverage, but you may need to supplement it with individual policies.

7. Explore help with student loans

Under the Teacher Loan Forgiveness Program, if you teach in a low-income school or educational service agency and meet other qualifications, you may be eligible for forgiveness of some of your federal student loans.

As a government employee, you may be eligible for public service loan forgiveness (PSLF)—another potential benefit you don’t want to overlook. This PSLF Help Tool can guide you through eligibility criteria and actions you need to take.

8. Don’t just save, also invest

Saving money for emergencies is essential, but when you’re setting aside money for longer-term goals it’s important to switch gears from being a saver to an investor. Investing puts your savings to work—so you don’t have to.

If you’re new to investing, take some time to educate yourself about the tradeoffs between risk and reward and the importance of diversification. While stocks have historically performed better than cash or bonds over long periods of time, because of their volatility they’re generally only appropriate if you have a timeframe of five or more years.

9. Start saving for retirement NOW

Depending on your state and district, you may have access to a traditional pension plan. These days a pension is a relatively rare benefit (about 86 percent of state and local public sector workers have one as compared to 15 percent of private sector workers). If you’re among this group, understand the vesting rules and find out how much you'll likely receive on an annual basis—as you may still need to supplement it with other savings and income.

If you’re not contributing to Social Security through your teaching job, understand how any Social Security benefits you might have from another job or even a spouse’s work history might be reduced.

As a teacher, you may have access to a 403(b) or 457(b) plan. Similar to 401(k)s, they are powerful tax-advantaged retirement accounts, and can be either pre-tax or after-tax (Roth). Be sure you fully understand your investment choices, contribution limits and the rules for taxes and required minimum distributions. 403bwise is a great resource to learn more.

And finally, consider contributing to an IRA to amp up your retirement savings even more.

10. Create a financial plan

My final thought is to encourage you to work with a financial planner to create a comprehensive financial plan. Many people believe financial plans are only for the wealthy. Quite the contrary. This checklist includes top-line advice—but when it’s time to dig into all the particulars of your life and put the pieces together, there's no substitute for a professional financial plan, which can be low-cost or even complimentary.

As a mother of three, I have a deep sense of gratitude and respect for teachers. You're part of a profession that cares for others, but it's my job to tell you to also look out for your own best interests. Do your financial homework. Pay attention to your benefits as well as your salary. Create a financial plan. That way, you’ll be able to thrive as an educator, focusing on the job you love.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.