Managing Your Money
Nobody goes into teaching to get rich. The richness comes in working with great kids and colleagues.
However, if you take a few simple steps, you can make your teaching paycheck stretch further than you might ever dream.
Here are some tips.
How to read your paycheck
A. GROSS PAY is what you wish you were getting. It's the total amount the district pays you based on the salary schedule in your district before taxes and other deductions.
B. FIT, or Fed. Inc. Tx. or FEDERAL INCOME TAX is the amount deducted from your pay and withheld by the IRS. The percentage taken from your gross pay depends on your personal tax bracket and the number of withholding exemptions you indicated on your W-4. The same goes for STATE INCOME TAX.
C. FICA is the government name for SOCIAL SECURITY taxes. (Rate by employer & employee is 7.65%). You should check your FICA records every three or four yeas to be sure your account is being credited accurately. Your retirement benefits are affected by the accuracy of this account.
D. RETIREMENT contributions go to the Montana Teachers Retirement System. While you teach, this money works to provide you with a substantial pension program. Check your retirement/service credit annually.
E. OD, or OTHER DEDUCTIONS are those you have chosen. They could include tax-sheltered annuities, additional insurance, or association dues.
F. NET PAY is the amount left after all of the above has been taken out. The rest of this article offers some suggestions about how to handle your check.
How to handle your paycheck
This is it! A new job, a regular paycheck, fringe benefits, and a built-in retirement plan.
But before you head out to spend all that hard-earned money, let's talk about what you can look forward to in your first year of personal finances.
One thing is certain: You will meet a lot of new "friends." Many of these new "friends" will be trying to sell you something. The offers could range from insurance products to a time-share condo in Florida.
Before you make any financial decisions, take time to understand thoroughly your current position. Know what you will earn and how much of that you will get to keep. Don't plan on spending your salary. You can only spend real income, and that's what is left after all the deductions have been taken.
With that figure in mind, determine what your expenses will be. List rent, groceries, taxes (property, per capita, occupational), phone, car (loan, gas, repairs), utilities, clothing, entertainment, and, most important, savings.
Shop around for the best bank deal. Look for the one that charges you the least for services on checking and savings accounts and one that will pay you interest on your checking as well as on your savings account. Every payday, make two deposits--one into checking and the other into savings.
Before you're ready to make decisions on insurance, you should find out what fringe benefits you already receive--health and life insurance. You will also begin accruing sick days, which act as a small disability insurance program.
Find out what fringe benefits you receive
Now you're ready to meet those new "friends" for a visit. They'll be eager to tell you all about the insurance program "you can't afford to pass up" while the rates are good and you're still young. The first question to ask yourself is, "Do I really need this insurance (at any price)?"
When someone offers you a "dreaded disease" policy, remember that coverage is limited only to the named disease and if you should happen to come down with something else, you won't be covered.
Car insurance, if you have a car, is a must and is required by law. Even here, it pays to shop around. NEA Member Benefits offers excellent affordable car insurance through California Casualty. Check it out at www.neamb.com.
If you own a home, it will most likely represent all of your earthly possessions. Insure it with a good homeowner's policy. Specifically, consider one with replacement value coverage. If you rent, remember that the landlord's policy only covers the property, not your personal possessions. Get a tenant insurance policy for your furniture, books, clothes, and valuables. Comparison-shopping is beneficial for all types of policies. Check out the insurance offerings through NEA and AFT‹ www.aft.org/benefits/ and www.neamb.com.
You will be a target for life insurance agents -- not necessarily because they think you need life insurance -- rather because insurance agents make most of their commissions from the sale of life insurance. Remember to check on the school district coverage. It's likely that, at least for right now, you won't need any more personal coverage. If you decide that you do need more, talk to at least two other agents before you buy anything.
Stretching your paycheck
Teacher pay in Montana is much lower than teachers deserve. MEA-MFT is working hard to change that through legislative action -- because after all, teachers have families to raise, too!
In the meantime, our national affiliates, NEA and AFT, offer many excellent programs to help you stretch your paycheck -- through discounts, affordable car and home insurance, low-rate credit cards, and many others. Don't miss these opportunities -- you can't afford to! Check them out at the Member Benefits section of this web site.
Saving your hard-earned cash
There are many good ways to salt some money away. Here are a couple of them:
TDA (Tax-Deferred Account) TDAs divert current income, thus avoiding immediate federal and state income taxes. Taxation is deferred until the money is taken out of the plan, usually at retirement. TDAs are one good way to put money aside and let it grow.
Withdrawals. You may withdraw all or part of your funds when you reach age 59 and one-half, and you must start to take withdrawals by April 5 of the year after you reach age 70 and one-half. Withdraws prior to age 59 and one-half are subject to 10 percent tax penalty. Some contracts contain a loan provision, which allows you to borrow a portion of your funds from the program. These must be repaid within five years.
Settlement options are listed in the TDA contract. These usually provide for a fixed monthly annuity amount.
Investments: Insurance companies provide most TDA contracts. They usually offer fixed or variable investments. Other plans are available from mutual fund companies and stockbrokers.
Fees and other charges: Most TDA contracts are "no load," which means there are no front-end fees. These plans usually have early withdrawal fees. There are usually annual account management fees and/or administrative expenses.
Where to buy into a TDA: Since TDAs require payroll deduction contributions, a plan must be put in place in the school district through the business office. This results in TDA sales representatives coming to the school to see you about the plans. Most purchases are made through insurance company representatives, some through mutual fund company representatives.
IRA (Individual Retirement Account)
Tax-deferred status: Same as the TDA.
Withdrawals: Same as the TDA; no loan provision in IRAs; withdrawal amounts are at the option of the plan owner, as long as they meet IRS minimums.
Investments: You can select your own investment program in almost anything other than art, antiques, and precious metals. The choices among IRAs are usually wider than those offered in TDAs. Examples of IRA investments are Certificates of Deposit (CDs), stocks, mutual funds, partnerships, and money market funds.
Fees and other charges: Most banks, savings and loans, and credit unions do not charge fees. IRA accounts through commercial companies usually charge annual maintenance fees. The so-called "Self-directed" accounts are subject to broker commissions on the buying and selling of the investments in the IRAs as well as to annual account maintenance fees.
Where to invest in this plan: You can invest in an IRA at any bank, savings and loan, credit union, mutual fund company, and/or stockbroker.
Financial planning programs from NEA and AFT
Members of MEA-MFT are eligible to participate in a variety of excellent competitive investment plans and money saving programs sponsored by our two national affiliates, the National Education Association (NEA) and the American Federation of Teachers (AFT). See the web links below when you are considering investments, insurance, travel, supplemental health care, credit accounts, home loans, life planning, and money management.
All of the programs offered by these national organizations are affordable, dependable, and designed with educators in mind.