Common Money Mistakes Teachers Make
As someone who specializes in working with Washington state employees, I've met with many teachers who do little things that result in big mistakes. When I see people make these mistakes, most of the problem isn't entirely their fault. In fact, it's just the way the system's built. Unless you understand how these things work, you're doomed to fall into this trap. Let’s get into the common money mistakes for teachers and how to fix them!
-Failing to increase your Retirement Savings each year
Failing to increase your retirement savings each year may sound like an insignificant mistake, but over time will have a big impact on the amount of money you possess at the end of your career. Let me explain this in accordance with your possible situation:
If you have Plan Three:
If you have money invested into Plan Three, then your retirement savings will be allocated using a percentage of your income. So you can elect 5%, 10%, or 15% of your income to go into that plan. Due to this plan being percentage-based, as your income rises so will your time and contributions.
If you have a 403B, DCP plan, or Roth IRA:
However, if you're putting money away into a 403B, the DCP plan, or even a Roth IRA your results won’t be like those with Plan Three. These types of contributions are commonly called Fixed Dollar Contributions. Meaning, a selected set amount will be contributed per month. That number amount will stay the same until you change it. Even as your income goes up, those contributions won’t change! This just means you will have to remember to go back every year and change it with any rises in your pay scale.
-Not Planning Ahead
The amazing thing about being a teacher is that you receive your salary schedule ahead of time. Therefore, you can easily know what your salary is going to be for the upcoming year and what the next steps are to move up that pay scale. Teachers have the ability to plan for success, an advantage that most people don't have. Therefore, not planning ahead with an advanced salary schedule would be a huge mistake for any teacher to make! Of course, we have to know exactly how to plan for success in order to reach it.
There are many strategies to apply to your money that’ll set you up for future financial success. One of those amazing strategies is breaking your financial increases into thirds. For example, if you’re going to receive a raise of $5,000, then you can strategically plan how to spend the money within thirds. The first third should be put towards your education. That education could just be something that you want to get better at or it could be used towards formal education, such as getting your masters. The next third will apply directly to your savings, in which you take a third of every raise you get each year and put it towards retirement savings. And the last third should be put towards… whatever you want! Go have fun with that last third of well-deserved money.
The key point here is to have a PLAN for all of your increases over your career. Without a plan, you're gonna feel trapped in what's called lifestyle inflation. This is used to describe someone that works, making $50,000 a year, yet doesn’t have any extra money set aside for their retirement needs or to build their emergency funds. Even when they start making $200,000, they still have no money saved because of their poor planning. Therefore, it's important to put yourself first and pay yourself first. That way by the time you get those increases, you can put the money away somewhere safe so it’s there for you down the road. Once you get into the habit of strategically saving your money on a consistent basis, it will ultimately help you avoid that lifestyle inflation.
The key to financial success is consistency, which may be challenging to make a habit out of. However, there are very easy ways to fix this consistency problem, such as putting a reminder on your phone or hiring a financial advisor that's going to be able to keep you accountable. Having an advisor is one of the best ways because they will know the right moves and options for your exact situation. This will save you an incredible amount of time rather than doing your own research, which alone could be worth the fees you pay them.
Money mistakes and bad habits may be destroying your lifestyle and overall financial success as a teacher. But following these tips and tricks will for sure be a game-changer in the long run. It’ll increase your financial savings, better your lifestyle, and improve your overall situation. Of course, if you find any of these tasks difficult with your busy life, then turning to a financial advisor would definitely be the decision to make. Don’t hesitate to get that help and finally start living life with some financial freedom!
We know time is short, and there are many moves to make! Find out more by scheduling with us, it’s time to see exactly where you stand: