My Observations on How to Manage Your Finances as a University Professor
Key Takeaways:
1) Save at least 20% of your gross income for retirement.
2) Create a budget using the 50/30/20 Rule.
3) Maximize your employee benefits.
4) Educate yourself about investments or get help!
As a university faculty member, other faculty members often ask me some key considerations to ensure their Personal Finances are in good order. This blog post also applies to those in administrative roles at universities or colleges. These are my observations about personal finances teaching for over 20 years.
As you know, working in higher education is rewarding and challenging. The rewards are serving others and their passions. But there are challenges with the pay not generally keeping pace with inflation (or not increasing much!), program cutbacks, and continued oversight and scrutiny (Aka bureaucracy).
So what are some key considerations to keep your fiscal house in order during challenging times?
1. Save for retirement: This is very simple but important. Most university faculty have some retirement program. Faculty typically are late savers for retirement since they can spend 8-10 years in college. Retirement could be in the form of a pension, which provides lifetime income in retirement, or a defined contribution plan such as a 403(b), similar to a 401(k) in the private sector. Most universities provide a percent match to the faculty member's contribution. For example, up to age 50, you can contribute up to $22,500 per year in 2023 into a 403(b) plan, and part of this could get a match. Suppose you are lucky enough to have a pension. In that case, you can save additional money in a defined contribution plan such as a 403(b) or 457 available with your university and/or open a Roth IRA. Just don't save the minimum for your retirement. Being an active saver and saving around 20% of your gross income for retirement and other long-term goals is essential.
2. Budget, budget, budget: If you are new to a faculty position and perhaps just finished your Ph.D., you suddenly have this windfall of money. Make sure you are prudent with your newfound resources. So you will want to save enough, with a recommendation of 20% of your gross salary (as mentioned), have enough to meet your wants (vacations, going out to eat,…) around 30%, and the remaining amount to your needs (mortgage, rent, utilities, debt…) at around 50%. Paying off student loans and high-interest debt like credit cards is a top priority. Beyond this, investing money to generate a better return should be done. The main thing is to keep track of your spending to know where the money is coming and going. Create an emergency fund with 3-6 months of living expenses in a high-yield saving account. This money should only be used in case of an actual emergency.
3. Employee benefits: One of the great benefits of higher education is that the employee benefits are generally excellent. You will typically have affordable health care coverage, vision, and dental. There will also be insurance options such as disability and life. Group disability insurance is much cheaper than plans on the private market, so you will want to take advantage of this. Are you making the right choices for you and your family? If your spouse does not have good employee benefits, they can take advantage by being on your plan. A financial planner can provide an in-depth analysis of your employee benefits to ensure you take full advantage of them.
4. Review your investments: It is always good to review investments regularly. Are you on track to reach your goals, such as buying a new home, paying for your son's or daughter's college, retirement, and a vacation? For example, do you have your retirement investments in the appropriate mutual funds? Have you logged into your retirement accounts recently (or at all)? Often we ignore investing and finances because they are not enjoyable. Unfortunately, this tends to backfire. You either need to educate yourself on investments or hire someone to help you with your investments. Gone are the days when we just had pensions and no investments. We must be more involved in our finances since this can make or break a retirement. A financial planner can help you track goals and work as your accountability partner to reach your financial goals.
5. Enjoy the milestones of your academic career. We often get so busy at work with tenure or promotion, the following grant or paper we are about to submit, or the unexpectedly large class we are about to teach, yikes! It is essential to enjoy the job and what it offers. Very few jobs give you the flexibility to work from home at times you like, take the summer off to visit family and friends, or work on a research project. Make sure you enjoy the great opportunities, but work on your finances and maximize these along the way.
No matter what stage you are in your academic career, it is never too late to work on your finances. Contact me below, and we can talk more about your finances and my services.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid Federal Government tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in estate planning should work with an estate planning team, including their legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.
