Financial Independence: The Basics for Teachers

Keelan Muscara

Financial Independence: The Basics for Teachers

Financial Independence

The Basics Series Part 1 of 5

If you’re a full-time teacher in your 20’s or 30’s like me, life is most likely pretty good. Hopefully the teaching profession is still “somewhat” fresh and exciting. You have energy and passion, and you’re excited to go to work each day and make a difference.

Flash forward a couple decades.

I want you to imagine that you’re 50 years old. MAYBE life is still pretty great. MAYBE you still love going to work each day and MAYBE you’re just as excited about teaching as when you first started.

If that’s the case-Great! I think we all believe that we will be this type of person at 50. 

But what if you aren’t? What if you don’t love going to work each day? What if you are tired of it?

Maybe your circumstances changed. Maybe your values changed. Maybe you’re just burnt out from teaching. I know it may not seem like it now, but that scenario is very real. 

Now imagine that you can’t leave because of money. You’re trapped. Maybe you want to spend more time with your children, you want to travel while your body is still able, or maybe you simply want to explore other interests – but you can’t. 

You’re living paycheck to paycheck and your working for that pension. 

Think about those handful of older, crabby, unhappy teachers in your building that fit that description. You know the ones I’m talking about. They say things like “5 more years until I can get out of this place with my full pension”. Don’t lie, a couple faces just came to mind when I said that. We all have those people! It’s everywhere in this profession.

Now I don’t know about you, but I don’t want to take a chance on that being my future. I want to have control over how I spend my time. I want to be able to choose to stay in education, or choose to leave and do something else. 

For many, this is a radical way of thinking. 

I’m sure most of you reading this just assumed that you would work in education for the next 30+ years, and just accepted that as your fate. If you got tired of teaching after 20 years, oh well… As Jim Carey said in the movie Bruce Almighty “and that’s the way the cookie crumbles!” Sorry for the cheesy movie reference. 

I thought the same thing. I remember my first year of being a full-time teacher and getting told by my colleagues…. 

“You have to work until you can get full pension benefits”

“Once you get tenure, you’d be foolish to leave your job”

“Get comfy, because you’ll be here for the next 30 years”

As a new teacher, I remember on one hand being thrilled to have landed a full-time job, but on the other hand I was petrified at the thought of being locked into a career for the next 30+ years. 

No talk of designing a life that leaves you with options. No talk of smart financial planning.

Which brings me to the point of this post. 

How do you design your life as an educator to leave you with options?

What can you do to avoid the chance of being that burnt out, crabby 50 year old teacher? 

Enter Financial Independence.

Let’s jump in.

What is Financial Independence?

Authors Brad Barrett, Christ Mamula and Jonathan Mendonsa of the book “Choose FI” said it best, Being financially independent means you have built up enough wealth to enable the freedom and flexibility to design your life in alignment with your values.” 

In other words, achieving Financial Independence (FI) means you can cover the cost of you or your families living expenses without having to work.

How Do You Know When You’ve Reached Financial Independence?

People are reaching Financial Independence at all ages. A small dedicated group get there in their 30’s, some get there in their 40’s, others in their 50’s and 60’s, and some never get there at all. 

Generally, the financial independence community says when your net worth is 25 times your annual expenses, then you are considered financially independent. For example, if your annual expenses are $40,000, then you’re financially independent when your net worth is 1 million dollars.

Now I’m sure you’re thinking right now, I’ll never be able to reach financial independence during my career as a teacher. I thought the same thing. 

Not only is it possible, but teachers all over the country are achieving FI well before standard retirement age! 

If you google “teacher financial independence” you will find an abundance of real life stories and blogs dedicated specifically to teachers who have already reached, or are currently on the path toward financial independence.

Here’s just one of those articles.

If they can do it, so can you.

What Do I Do To Reach Financial Independence?

The simple answer is Earn MoreSave More and Invest More

Earn more than you spend and invest what you have leftover. That’s it. That’s the formula to achieving FI.

The more you’re able to earn, save and invest, the quicker your path will be to Financial Independence.

But how can you earn more on a mediocre teachers salary?

Great question, and you’re right. The earnings on base teacher salaries alone will make it difficult to achieve FI. 

So teachers need to think outside the box by finding additional opportunities to earn more.

Now, I’m not saying you need to take on a whole other full time job. Trust me, I know how exhausting teaching is by itself. 

What I’m talking about are school related money making opportunities and out of school side hustles. Anything you can do to add some extra padding to your teaching salary. 

Coaching, chaperoning, test proctoring, tutoring, freelance writing, selling real estate, dog-walking, whatever! Just find little ways to earn more. 

After you do that, save more by keeping your expenses low, and invest the rest

Find ways to live frugally and invest, invest, invest.

By doing this you will create a path to FI. 

Why Do I Need To Invest?

Investing is important to reaching Financial Independence

Most commonly, money to achieve FI and certainly to sustain FI comes from investment income-also known as passive income.

Passive income is money you generate from little to no daily effort. It’s the returns from your money working for you rather than you working for your money.

The opposite of passive income is active income, where money earned is a direct result of the time and work you put in. Our teaching jobs are an example of active income. As teachers we trade time for dollars. The downside is that there is a fixed amount of time you can possible work each week so you’re earning potential is limited. 

Passive income is great because your earnings happen continuously without you having to work for it.

It’s the reason why you can stop working when you’ve reached your Financial Independence number and live your same lifestyle without depleting your net worth.

There are many different passive income opportunities out there, but the most common with the lowest barrier to entry is investing in financial assets. (stocks, bonds, etc.)

Investing in financial assets is a great way to increase your earnings over time with no added effort.  

For example: if you were to put 100 dollars into a stock market index fund and after a year the market produced a return of 7%, you just made yourself a quick $7. Not only that, but that profit was earned through no work at all-just your initial investment working for you. 

Now a $7 annual return may seem like chump change for most people, but if you think of that dollar amount on a larger scale, say $100,000….well now that 7% yearly return just made you $7,000, and that’s only after one year!

Basically, the more money you feed your investments, the greater your returns will be over time.

The Power of Time

Time is your greatest wealth building tool for long term investing. 

This is especially true with investing in the stock market. 

Analyzing stock market trends over the past century shows us that throughout an individuals career, the stock market ALWAYS goes up. No matter what. Yes, there will be one down year or a few consecutive down years here or there, but over the longterm the market will always go up.

                                                  DJIA  1900 – 2012                   

Therefore, through index investing, where your returns are a direct result of market performance, the more time you spend in the market the greater your principal investment will grow. 

This phenomenon is the result of something called compound interest.

Compound interest is “interest on interest”. It’s when you reinvest the interest made on an investment so that the new amount of money that’s generating interest reflects the original investment plus any interest that was previously generated. (Yes I realize that’s super wordy. I’m sorry.)

The takeaway is this – the more time your money has to sit and generate interest, the more money you make. 

For example – If you invest $5,000 dollars right now in the stock market and take it out after 30 years at a 7% average annual return, you will end up with just over $38,000 after 30 years. Now if you invest that same $5,000 and take it out after 15 years, you’ll end up with a little more than $13,000. That’s a 25,000 dollar difference with the only distinction being the amount of time you spent in.

This variance becomes even greater when the amount invested is larger, and you consider that you will most likely be adding more to your initial investment each year.

The Bottom Line

Financial Independence gives you choices in the future.

The path to Financial Independence starts with earning more, saving more, and investing more.

The formula is simple, earn more, save more by keeping expenses low, and invest the rest.

What’s Next?

Continue on to Part 2 of 5 in the Basics Series – Earn More: The Basics for Teachers.

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Keelan Muscara

Keelan is a 28 year old music teacher from New York. After paying off 45k in student loan debt in under 2 years, he got passionate about personal finance, leading him to the Financial Independence movement. Keelan writes about practical strategies for teachers to earn more, save more, invest more, and create a path toward financial freedom.
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