In this episode of The Teacher Career Coach Podcast, I talk with current teacher Rachel Scott, a third-year high school English teacher, newspaper adviser, and volleyball coach who LOVES her job in financial planning. Another thing she loves? The option to retire early. Rachel has worked hard to learn how, even as a teacher, she can set herself up to retire on her own terms and timeline. The good news? She wants to spread the wealth.
Rachel uses her platform, Teachers Talk Money, to help other teachers master their money to give back to themselves and feel a sense of financial freedom. So, whether you’re looking to learn about financial planning for teachers as you prepare to change careers or simply looking for tips to help you gain more financial freedom, you’ll want to press play on this one.
Financial Planning for Teachers Recap and BIG Ideas:
- Teachers can take proactive measures to achieve a sense of financial independence, like setting up and sticking to a budget.
- Budgeting is a great tool to help you achieve your financial goals like saving, paying off debt, and investing.
- It’s okay to spend on things that aren’t necessities, as long as you budget and account for them.
- Despite common practices among teachers, frugality isn’t the answer to making long-lasting change, achieving long-term goals, or getting better at handling your money.
- Being aware of and intentional with your spending are crucial elements to mastering your money.
- In addition to employee-sponsored retirement accounts, there are several benefits to independent retirement accounts.
- The most important part of investing is getting started. Then you can backward map your approach to match your personal goals.
- Whether your goal is to change careers or retire early, it’s essential to have a plan for your money so you can achieve those goals.
Listen to the episode in the podcast player below, or find it on Apple Podcast or Spotify.
Rachel believes everyone deserves to feel financially independent, even teachers!
Daphne: Hi, Rachel. Thank you so much for joining us here today.
Rachel: Hi, Daphne. I’m so excited to be here.
Daphne: Can you briefly introduce yourself and explain what it is you do and what you’re passionate about?
Rachel: I’m Rachel Scott, but you can find me anywhere on social media under the name Teachers Talk Money. My goal is to help teachers know their options and realize that financial abundance is possible for us, despite limitations on salary and time.
I’m currently in my third year teaching English, and while I love my job, I know it’s not what I want to do forever. So, I’m seeking financial independence in order to have the option to retire early. For the time being, I love teaching, and I just get excited about helping other teachers manage their money.
Daphne: Can you share some proactive measures you’ve taken to set yourself up for financial independence, even while you’re still teaching?
Rachel: There’s a lot of pieces to it. I would say the first step for anyone interested in financial independence is to keep a budget. I know it’s the least thrilling and least sexy-sounding thing that I could tell you to do, but it has been the most significant thing in turning around my money mindset and getting me closer to my goals.
I don’t know about any of your listeners, but I’ve never reached a goal by accident. I’ve always needed to make a plan. A budget is essentially a plan for your money. Most of your future goals are in some way related to your financial state. So I really can’t stress enough the importance of a budget.
Keeping a monthly budget has been the biggest thing for me in order to know how much money I can save and what goals I have enough money saved for. It also helped me rapidly pay off debt in my first year of teaching. Then I could get into investing, which is the most critical opportunity for actually growing your money.
Daphne: I struggled with paying my rent on my teaching salary and remember how hard it was basically living paycheck to paycheck. I had been teaching for three years and had a master’s degree, but I still could barely afford my rent in Los Angeles. That’s an unfortunate reality for so many teachers.
I have teachers who reach out saying they’re struggling and need therapy but can’t afford it. My advice is always to have 3-to-6 months’ worth of expenses saved before considering breaking your contract or leaving at the end of this year.
Now, how can I ask someone who’s living paycheck to paycheck to set a budget where they can actually save that amount? Do you have any suggestions?
Rachel: Yeah, that is such a real struggle. It’s just absolutely a disgrace how little teachers get paid. The most recent national average for teacher salaries that I’ve seen was something around 61k. As a newer teacher, that doesn’t sound so bad, but when you look at the average cost of living for a family with two kids, it’s a couple thousand higher than that. And that’s for a family with two kids.
Then you think about the teachers who are single parents or single income earners supporting their families. The fact that they dedicate so much of their lives to public service and work so hard to teach children, yet they don’t make enough to support their own family, or in some cases, like you mentioned with mental health care, themselves, is a disgrace.
Despite the financial struggles many teachers face, there are ways to create more awareness and take control through planning and budgeting.
I never want to ignore that reality and the barriers of time and salary teachers face. So that being said, we do need to focus on what we can control in some ways. In terms of saving that amount required for your emergency fund, everyone should have one, whether you’re planning to leave the classroom or not. Emergencies come up, or administration could change and, with it, what’s expected of you. Suddenly you might have reasons to consider leaving. Everyone should have that cushion in place either way.
The first thing I would say to anyone struggling with living paycheck to paycheck, even people who aren’t teachers, is to keep a monthly budget. Oftentimes those teachers avoid looking at their finances because it’s stressful, and they feel like they don’t have enough. In some cases, you may not have sufficient income from your current job. If that’s the case for you, I highly recommend a career change to make more money.
There are so many different strategies for approaching a budget, but essentially, a budget is knowing how much income you bring in and designating places for that money to go. A big part of that is knowing your fixed expenses, meaning your rent, bills, and anything else that is the same every month. And then the other part is knowing your variable expenses, which are things you can adjust, like groceries, dining out, new clothes, or whatever those categories may be for you.
I differentiate between fixed expenses and variable expenses because it simplifies it in terms of what you actually need to track. When certain expenses are the same every month, you don’t really need to track them. However, you might need to pay attention to when you’re paying those bills based on when you get paychecks. You’re not going to have to track every one of those fixed expense amounts because it’s the same each and every month. Whereas with your variable category, every time you make a purchase, you need to add it to your total expenses.
Budgeting is a great tool to help teachers achieve their financial planning goals like saving, paying off debt, and investing.
So there are really two parts of budgeting. One is setting up the ideal numbers for those expenses, especially the variables. The second part is tracking to see how close you are to staying within those numbers. There’s a lot of trial and error at first because you’re estimating how much you spend on those variable expenses. That’s okay. A budget shouldn’t be set it and forget it. It is a living and breathing thing that’s going to change each and every month.
A lot of people will start budgeting and feel discouraged if they go over in one category, but that might just be showing you that you need to plan to spend more in that category or be more mindful about cutting back spending in that area.
So once you have your income, your fixed expenses, and your variable expenses, you can then see what amount is left over for saving. When it comes to saving, your first priority should be padding your emergency fund. Your second should be paying off debt, starting with whatever has the highest interest. Lastly, you can use that money to invest, which I recommend doing as soon as you have those first two priorities covered.
So really, what a budget shows is if there is any money left over after you’ve accounted for all of your necessary expenses and anything you want to spend money on, because it’s okay to spend on things that aren’t needs if you budget and account for them. Now, if you don’t have any money left over in your budget, that might indicate you have a spending problem, but in most cases, it’s actually an income problem. A lot of us think we’re just spending too much or are just bad with money, but the issue might actually just be that you’re not making enough money. It’s one of those two problems and it’s important to identify which of the two it is for you.
Rachel explains how frugality isn’t the answer to making long-lasting change, achieving long-term goals, or getting better at handling your money.
Daphne: Those are all really great points. I think a lot of times, people get so afraid to look, because they’re afraid to actually admit what’s going on, especially if the problem lies in their income. Even if they know it’s a problem, it’s so stressful that it’s hard to even look at your income or think about budgeting.
I try to teach a lot of course members and other teachers I talk to about money mindset because one of the only things that we don’t have isn’t an infinite amount of is time. Teachers spend so much time driving around searching for affordable teaching supplies or hours creating their own resources, when they could be investing that time in creating income through tutoring or something more passive, like selling digital curriculum online. Instead of investing so much time on saving, they could buy the thing and spend that time on other priorities or building a source of passive income.
Do you have any advice regarding that?
Rachel: Yeah, I love that you mentioned that because so many teachers fall into the trap of frugality. Now, a lot of people who talk about personal finance identify as frugal, but I’ve seen so many teachers get so excited about sales, deals, and couponing, yet they’re still ignoring the fact that they should still be budgeting their money. In a way, those behaviors to cut costs are avoiding the reality. Having that monthly budget to help plan for and allocate your money is what’s actually going to move the needle and those few dollars you’ve spent hours looking to save on classroom supplies aren’t really going to move the needle.
Again, I know budgeting doesn’t sound super fun or sexy, but it’s important to reach your goals, especially when you don’t make a lot of money. I don’t emphasize just trying to cut costs wherever you can because a lot of times, that’s a bandaid on what the real issue is.
Learn the importance of being an intentional consumer and how it can help you become more aware of your spending and lead to impactful results in your budget.
Daphne: Can you share some examples of where people can trim down their budget, like, for instance groceries, that can help produce impactful results in people’s budgets?
Rachel: I mean, I’m not trying to tell anyone what to do with their money because I think it’s important for people to build a budget that allows them to spend money on whatever is really important to them. That being said, I am an advocate of being an intentional consumer. What I mean by that is I don’t buy things all the time and I often wait 24 hours before I make a purchase, especially if it’s an impulse purchase. I also limit the number of companies I buy from, because I don’t purchase things from companies that have unethical practices and things like that.
I just believe in being incredibly mindful in whatever it is you’re spending your money on, and making sure that that’s something that’s truly going to add value to your life. I find that to be more effective than trying to cut costs on everything. I haven’t really seen anyone move the needle that much by just cutting costs and saving money that way. Again, so much of it comes down to having that intentional plan and following that plan by being intentional whether you are buying groceries, clothes, or any of those other discretionary purchases. Again, I think it’s important to make those purchases because you should be able to buy some things that aren’t necessarily expenses, but still add a lot of value to your life. But yes, I can’t say that focusing all your attention on buying stuff on sale is going to make a long-term impact.
Daphne: I love the 24-hour suggestion and that’s actually something that I work on practicing in my life, especially with clothing. I let it sit in my cart online for 24 hours and really think about if I truly want or need to make the purchase. It’s been super helpful for me in my spending.
And sometimes our spending surprises us. You know, I had to hire a bookkeeper just so I could see what I was spending in my business. I always thought I was frugal and in control of that spending, but I was totally just eyeballing it. So I’ve realized how helpful it’s been to sit down and realize how much I spend without being intentional about it. I also love that you support ethical businesses. We do that in our household too.
Exploring financial planning and retirement options for teachers beyond employer-sponsored retirement accounts within the education system.
So, the second thing that many teachers who have been teaching for 10-15 years want to know about is retirement. Teachers look at their retirement and wonder if they should just make it to 20 years to get the retirement benefits because they’re not quite sure what their retirement would look like at a different company.
Decisions like this can be scary because they have a big impact on their lives. So, do you have any advice for how teachers who are in that middle ground can start creating their own retirement or their own 401k or SEP IRA on the side to help supplement any gaps in retirement?
Rachel: Yeah, definitely. So we have quite a few retirement options as teachers. We all have 403b’s available to us as well as the pension that most of us are required to put money into. However, my advice is to not rely on the pension alone. Ma vary from district to district, like longevity and age, impact your ability to get the interest earned. Those state pension funds are often underfunded as well. So, just make sure you read the fine print if you’re thinking of walking away because if you’re at year 14, and you have to be at year 15 in order for that to vest, that’s definitely something you want to know. There’s likely somebody in your district who can answer all of these questions about your district’s specific rules.
Okay, so there’s the pension, and then the 403b and 457 options. Those are great because they come right out of your paycheck and usually have low-cost funds within them, but not always. If you’re thinking about getting started with retirement investments, compare the funds that are available within your 403b using something like Google to learn more about how the costs compare to similar funds.
Daphne: So if they start to consider walking away from teaching, is that money in a 403b or 457 something they can continue to add to with money from their new position?
Rachel: Yes. In most cases, you can roll it over to whatever your new employer’s retirement account is. And if not, you can just start a new one with your new employer and leave the stuff you’ve already invested sitting in there for sure.
Now I just want to note that with 457s, if they have similar fund options to your 403b, they are an awesome retirement vehicle because you can actually withdraw that money penalty-free before retirement age. You can’t do that with a 403b. So if the funds are the same, in most cases I would prefer the 457. If you want to take out the money from your 403b early, you’re usually going to get hit with a hefty penalty.
Daphne: When it comes to actually asking someone for advice at the district, would that be HR? Or would you need to go specifically to whoever manages the retirement accounts? Who would be the best point of contact to actually ask those types of questions?
Rachel: Yeah, that’s a complicated question, because not everyone who works with these retirement accounts are obligated to work in your best interest. Some will try to direct you to funds that have higher fees, because that’s more advantageous for them. I would always start with somebody in your district, just because the people at the level of the company that owns the 403b or the 457 may not have your best interest in mind.
Additionally, suppose you have the funds available to hire a financial advisor. In that case, you can hire one that has a fiduciary duty, which means a duty to act in your best interest and not theirs. They will give you objective, unbiased advice.
There are many benefits of setting up an individual retirement account, especially if you’re considering self-employment or contract-based roles outside of the classroom.
So, in addition to your pension and employer-sponsored retirement plans, like a 403b and 457, everybody has the option of opening up an individual retirement account or an IRA. Most people are allowed to contribute up to $6,000 a year or a little more if you’re above a certain age. Those are a really great option because you can just pick a fund that has historically performed well or use a robo advisor with low or no fees to help. Sofi is really good and they don’t have any fees. So basically they will make all of the investing trades for you. You don’t really have to have that much knowledge to get started.
So you can get started with investing in those IRAs and learn more as you go. Then you can decide if you want to move to a lower fee robo advisor or move to an account with somebody like Vanguard or Fidelity, where you have more choice around what funds are in your IRA.
Daphne: I’ve been using Betterment, which is a company where I could set up and rollover all of my 401k and all of my teacher retirement. When I left, I hadn’t vested in my retirement at all. So it didn’t matter where that money sat. Still, it was easier for me to roll it all over into one place because I didn’t plan to go back into the classroom or back into the California public education system. I knew I wouldn’t ever vest into my education retirement, so there was no reason to keep it within their retirement options.
When I moved it over, I had the option to start what’s called a self-employed, or a SEP, IRA, which allows even more than $6,000. As I created passive income, which I first did selling digital curriculum on Teachers Pay Teachers, I started to put a lot of my income from those sources into the SEP IRA to help build a cushion and make me feel comfortable with my finances. I knew if I was self-employed, an independent contractor, or a freelancer, I still wanted to have that peace of mind.
One thing I think teachers are looking for is that comfort and the ability to make decisions. If they are financially backed into a corner, they’re more likely to stay in situations where they don’t feel happy. They need to know they aren’t financially dependent on a specific job and that they could take a slight pay cut for a job that makes them happier. Or if they’ve dreamed of becoming a freelance copywriter or graphic designer, they can take that leap. Yes, you should have a plan for what you want to do and how you can make it work financially, but it’s important to know it is possible.
The most important part of financial planning for teachers is just getting started. Then you can backward map your approach to match your personal goals.
Rachel: I love that you mentioned Betterment because that’s one of those robo advisors who will choose the funds and make the trades for you. There’s really not that much knowledge-based barrier to entry. I would say my one piece of advice when you’re looking for a robo advisor to use is just to check the fees. Betterment is a really good low-fee option. I previously was investing with a company called WealthSimple for my Roth IRA and they had really high fees. I wasn’t aware of it and it ended up being fine. Honestly, it’s most important that you just start investing. You can always move that money somewhere else when you learn more.
I’m a fan of people just getting started and making any necessary adjustments along the way. I want you to have a basic understanding but not get caught up in it all in a way that keeps you from getting started. You can get that advanced understanding after you’ve already taken some actions to invest.
The only thing I wouldn’t recommend doing when starting out is investing in single stocks through data trading accounts like Robin Hood, where you buy and sell individual stocks from individual companies. There’s way more risk than investing in a retirement vehicle. Retirement vehicles like a 403b or an IRA involve investing in a fund, or a group of stocks, so it’s much more risk-averse. You still see your money grow over time.
Daphne: Everybody’s on their own timeline and journey with unique factors. But I’m sure some general tips would be helpful, right? So, as far as budgeting goes, without knowing too many specific and personalized details, how much would you recommend people try to put percentage-wise toward a savings fund and toward their retirement vehicle to allow for more stability and peace of mind in their future?
Rachel: If you’re just getting started with budgeting, I would recommend putting whatever is left over after you’ve taken care of your fixed and variable expenses toward your goals of saving, investing, or paying off debt. I would say just start with what you can because it’s more important to start than wait for a certain number. As teachers, we don’t have a lot of time or a lot of money to work with, so it’s important to do what you can with that money that’s leftover. Then you can start playing with other options and opportunities to earn more so you can put more toward those goals.
Start playing with any places where you’re not spending intentionally to see if you can lower any of your expenses there. In general, start with what you can and don’t worry about the percentages. Now, if you’re at a place where you’re living pretty comfortably, and you’re just looking for some me to throw out some numbers that you can use as a benchmark, I can do that too. Those would be whatever it takes to build an emergency fund covering at least three months’ worth of expenses.
It doesn’t have to be your full salary for three months, just what you need to cover those fixed and variable costs for three months. Generally speaking, teachers have pretty good job security, so the emergency fund tends to be just if you want to make a career transition or if a non-income loss emergency comes up. Start with three months, and then you can always beef it up from there if you want more security.
Investing 15% is a really good goal for a lot of people. So, that means investing 15% right into your employer-sponsored plans or your IRA. But as with everything, you want to have your goal in mind first, and then sort of backward map just like you would for lesson planning with a curriculum. So for me, I want to retire early, so before 59 and a half. I’m putting aside a lot more than 15% so I can reach my goal. So again, determine your goals first, and then backward map what percentage of your income it will take for you to reach that goal.
Whether you prefer to budget or auto allocate your money into a “hidden” account, it’s important to have a plan for your money so you can achieve your goals. A teacher’s financial planning depends on your goals and situation.
Daphne: My first job outside of teaching was an independent contracting role without additional benefits. While it had great work-life balance perks, I definitely felt the pressure to make sure I had six months of expenses saved up and put money toward retirement so I wouldn’t feel forced to go back.
Something that helped me budget during that time was to hide my money from myself. It didn’t involve percentages or anything, but I basically hid my money into a checking or savings account that I didn’t look at. I had my money automatically withdrawn and placed into those accounts to create that six-month emergency fund. I realized if I didn’t see my money, I wouldn’t spend it as often.
If I look right now, I think I legit have less than $500 in my checking account that I look at often. Everything else is hidden for a down-payment on a house or whatever. I forget that I have it, so I’m more conscious and intentional with my purchases from the $500 account. I think having your checking and savings account kind of hiding the big picture from you is a really good mindset adjustment that anyone can make.
Rachel: Yeah, I love that savings and life hack of hiding your money from yourself. Many people love automation, and whether they have a budget or not, they set up their bank account for auto allocations into different accounts that they don’t always see. I think it’s an excellent tool for people who don’t keep a budget but want that quick savings hack. Honestly, if that works for you, I’d rather you do that than try and fail to maintain a budget.
My goal is for everyone to understand that they can be dialed in on their finances. You’re not “bad at money.” I just want to empower you to know you can be really good at this and be super dialed in and on top of it. You can use the hack of hiding money for yourself. I love that my retirement contributions come right out of my paycheck because I don’t even have to think about it.
That being said, I still have a plan for all of the money that’s coming in. And I don’t like to automate my other savings because sometimes things change. If you don’t understand your budget and try to automate too early on, you could actually face fees or need to take money out of savings if you don’t have enough in your checking account. When that happened to me, I felt like I did something wrong, failed, or was bad at money, but those are all lies.
If you want to automate, though, that’s a personal choice to make based on your goals and situation. Nobody can tell you what exactly you need to do or what those goals are. These decisions should be based on your personality and goals, and then you can determine what the next best steps are for you.
Rachel has more financial planning for teachers advice on her various social media accounts!
Daphne: Well, Rachel, I know that there was one topic that I’d love to have you come back on and talk about in the future, which is how teachers could start to put a plan together to potentially retire early. But unfortunately, we don’t have enough time.
Where can teachers find you if they want to follow you and find out more about anything to do with retirement and budgeting?
Rachel: The best place to get the nitty-gritty, teacher-focused information from me right now would be my YouTube channel, which is just called Teachers Talk Money. There you can find videos about how to retire early as a teacher, how to save for your emergency fund, and how much you need in an emergency fund. I talk about sinking funds and savings accounts, how to budget, and even share my budget and net worth every single month. If seeing real numbers is going to be helpful, actionable, or inspiring, you definitely go to my YouTube channel.
I also share a lot of my journey on Instagram at Teachers Talk Money, and I’m going to be launching a podcast with my partner in crime, Christy of Financially Fit Teacher. We partnered together because I’m a millennial high school teacher, and she’s a Gen X elementary school teacher teaching on different sides of the country. We wanted to get together because we’re both super passionate about helping teachers master their money and being able to give back to themselves in that way. We’ll be launching a podcast coming out on March 25 called Teachers Talk Money, available wherever you listen to podcasts.
Daphne: Oh, I’m so excited to tune in and subscribe to your show. Thank you once again. This was such a great and informational episode. I know people are going to be excited to connect with you.
Rachel: Thank you so much for having me on.
Related video: Rachel and Daphne discuss financial planning for teachers with side by side comparisons here teachercareercoach.com/pensionvideo
Where to start
If you’re just beginning to think about leaving teaching, brainstorming other options is a great place to start. But if you’re like many others, teaching was your only plan – there never was a Plan B. You might feel at a loss when it comes to figuring out what alternatives are out there.
Start with our free quiz, below, to get alternative job options for careers that really do hire teachers!
Taking the First Steps to a New Career
If you’ve already taken our quiz, it may be time for the next steps. I want to help you get some clarity in the options available to you. To know EXACTLY what you need to do (and not do) in order to get your foot in the door.
One of the biggest mistakes that I see teachers make is that they try to navigate this process alone. Often, they put off “researching” until the very last minute. Which sets them up for a very stressful application season – trying to juggle teaching, figuring out a resume, researching jobs, and hoping to nail down some interviews before signing next year’s contract.
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