To some teachers, financial independence feels like an abstract idea, unattainable to them. Really though, all teachers can reach financial independence and reap the many rewards for taking that path. Here, we’ll look into how and why you can make this concept a reality for you.
When you were a kid, what was your dream for yourself? What did you dream of becoming?
For me, it was a baseball player and later a basketball player. The fact that I was only passable at each was irrelevant. It’s what I wanted to be.
And Why? Simple. 3 F’s. Fun, fame and fortune.
Baseball players were famous, and baseball players were rich. They also got to play a fun game for their fame and fortune. Those simple facts trickled down to my growing, impressionable brain and took hold.
If you ask your students now, you can get a wide array of responses. Some are incredibly refreshing while others reflect my line of thinking in a modernized way.
“Youtuber” and “Social Media influencer” might be on the newer side of things and could be mixed in with some of the classics like basketball player, actor, or musician.
And if you probed a little deeper, it’s probably safe to say that the words “famous” or “successful” are probably implied with those aforementioned professions.
I want to be a famous basketball player, Youtuber or actor. I want to be a successful musician or social media influencer.
If you have the great fortune of teaching certain age levels that I won’t name, your teaching may be met with varying levels of indifference. Why? Because this fame and success, in the students’ minds, is pre-ordained.
I don’t need to learn this (fill in subject matter), because I’m going to be a famous (fill in the profession).”
What’s lost in all of this are the incredibly long odds for each of them to achieve these levels.
In the NBA, for example, there are about 400 players. I won’t get silly with the math, but with about 7 billion inhabitants on Earth, let’s just say I don’t like your chances.
And if 5 of those kids are purportedly sitting in any given class, then I DEFINITELY don’t like those chances.
But it’s not our job to shatter dreams, so I don’t. Besides, maybe I’m wrong.
However, there is one question I want to ask them and that is this: “Is it such a bad idea for you to have a back-up plan?”
“Just in case your long-shot career move doesn’t work out, it’s probably prudent to have a back-up plan. Let’s make school your back-up plan… Get back to work.”
And that, today, is a message I want to consider in this post. The idea of the back-up plan. For me, and perhaps you, that back-up plan could be this idea of being Financially Independent.
That way we can take control of our own destiny, and not be so reliant on other forces (like pensions for example) to dictate our future.
Financial Independence – A Good Back-Up Plan
Last year I burnt out teaching. I didn’t think it would happen to me. I really didn’t. But, given some of my prior money habits that were favorable, I had a de facto back-up plan baked in.
Between then and now I have done a deep dive into this concept of personal finance, and my ideas have hopefully evolved. This is partly why I write. I want to share what I have learned with the hopes that it can positively impact your life as it has for me…
So, even if you are reading this and your job is going great and you love it, it seems to me, in my 12 years on the job, that there are no guarantees it will continue this way.
Principals move on. Students and parents change every year. Superintendents switch districts on the regular. Education, in general, is constantly morphing.
Enter the back-up plan.
Saving your money and growing it, can, in essence, be a back-up plan in case you ever find yourself burnt out (or in some other extenuating circumstance).
And, by the way, I freely admit that I had other factors at play (fixer upper house, baby, etc.). It wasn’t all the job.
But in the same breath I’ll say that the rates of teacher burnout are going up, not down, across the country. So, I know I’m not alone.
And while my favorable personal finance habits weren’t meant to be a back-up plan per se, I was so glad that I had them in place so that I could take this year and regroup.
As I write to you today, my future is still uncertain, and I’m planning to head back into the field. However, I am doing so with a new outlook.
For starters, I knocked out a HUGE chunk of that daunting house work. It will always be there in some capacity, but I feel very pleased with what I’ve accomplished.
In addition, given my research into Financial Independence, I now predict that I only have to work 5-9 more years, instead of the 18 years I assumed I needed to reach full pension.
That alone, has been so reassuring to me. I don’t even know that I can do it justice with words.
This psychology, of knowing that I’m taking care of my future self, is worth more to me than anything I could purchase.
I want you to have that reassurance as well. You have, in my humble opinion, the most important jobs there are. If you feel taken care of and reassured, it could take some stress off your plate and allow you to focus those energies to the important work that you do.
This is another reason I write.
So, in the same breath that I ask myself “Why can’t I be financially independent?” I also ask you, “Why not you?”
Answers will obviously vary, based on varying starting points, but perhaps the knowledge that you are taking those steps and creating a viable safety net or back-up plan for yourself, is well worth the potential spending “sacrifices” you make today.
Believe me when I tell you, it absolutely was for me! And if your line of thinking runs parallel to mine, then what are we waiting for? The steps, as I see them, are right there for the taking.
As soon as we allow for the fact that this plan can take many years, then the psychology behind it becomes much easier to accept.
But if your original plan was a 30-year pension then it doesn’t look so bad all of the sudden.
This post, “What Does a Millionaire Actually Look Like?“, has a table in it that lays out a pretty reasonable yearly savings goal that can get you to $1,000,000 in 20 years.
Personally, I want about half of that ($500,000) so my numbers look even more favorable and I’m hoping I’ll be closer to 5 more years to reach Financial Independence.
Let’s quickly look at what Financial Independence is, then explore the steps that I’m taking to go down that path.
What is Financial Independence (FI)?
Simply put, financial independence, as I see it, is reaching a level of savings where you no longer have to work for money.
In most cases this involves investing (and it certainly does for me).
Basically though, with your invested savings, you can live off the interest your savings provide for you, and/or your savings themselves.
In all of these calculations, I factor in an 8% rate of return from investments because that is what the market has averaged over time.
Example: Basically, if I reach my FI number of $500,000 then, in theory, I would be making, on average, 8% from the market per year. Eight percent of $500,000 is $40,000.
Then, when I’m 55, I could start collecting my meager pension. Mine might be close to $20 – 25% of my salary by then. Let’s call it $15,000.
In addition, because I have free time, I would have the option to earn some money on the side, if need be. Could I cook up a plan to make $10,000 per year on the side? Probably, though I recognize it’s harder than it looks.
Finally, as a back-up, don’t forget that you have the $500,000 itself that you could dip into if need be.
Put it all together and, in theory, you are making $65,000 per year ($40k from interest off investments, $15k from pension, and $10k from side hustle). If your financial needs are below that number, as mine are, than you have reached financial independence!
You are no longer beholden to a paycheck and free to dictate how you spend your precious “non-renewable resource” of time!
And as I write this, I come to an important realization. Perhaps my FI number is too high? Maybe I don’t need $500,000 saved… I think my break even amount for the year is about $25,000. $65,000 so far exceeds that, and is giving me pause… Over this past year of research, my FI number has gradually dropped. Perhaps it’s time for another tweak? Stay tuned on that one…
Either way, I’m not there now, so there is time to investigate it as I get closer to that point…
For now, however, if this is as invigorating for you, as it is for me, then let’s look at the plan, or steps, I’m following to get there. I believe that I am on my way and I ask again, “Why not you?”
Steps to Financial Independence
Here seems like a good spot to slap down a disclaimer. It’s the world we live in right? But very truthfully, I maintain, as I do in nearly every post, that I am NOT a financial expert. I’m only writing my plan for my own money, and what you do with yours is entirely up to you.
The only thing I’ll add to that is that I will never ask you for a dime, and that the general financial outline I follow are gathered from people that I trust in the field of finance.
For a post that references some of these people, AND a deeper look into the world of FIRE (Financial Independence Retire Early), check out this post entitled “FIRE, Hope and Early Retirement“.
Moving on, the steps I am about to lay out for FI, are pretty simple in nature. But remember that there has to be an underlying understanding that they take many years to reach.
Nevertheless, you have to start somewhere, AND, more importantly, they really don’t feel like much of a sacrifice. If anything, I feel so much happier/relieved knowing I’ve set a course that I believe in, rather than filling holes with expensive material goods (as I’ve done in the past).
Step 1 – Improve your Savings Rate: This is the foundation for which all of the other steps are built upon. If you can build your savings rate, you are spending less. If you spend less, than you need less money to live off of. If you need less money, then your FI number lowers. If your FI number lowers you can retire earlier.
So, like I said, this is a big one.
For your reading pleasure, I have created a bunch of posts on this subject matter. Here, I’ll highlight two of them:
If you are interested in even more options on saving money, click here and it will take you to the “saving money” page where all of those posts live.
Step 2 – Get out of “Vicious Debt”
By “vicious” I mostly mean “credit card debt.” Debts like these carry massive APRs that approach or exceed 20%. If I’m expecting an 8% return on my investing then losing over 20% is 2.5X of that in the wrong direction.
Clear that stuff up.
The positive spin is that you can think of it as investing. You are getting over 20% return (or whatever your APR is) on your investment. That’s crushing it!
And once you wipe that stuff out you can investigate other debts that may be high as well. Can you consolidate? Are there ways to bring that percentage into a much more manageable range?
Doing these steps can save you many thousands of dollars per year that we are giving away for nothing.
Wipe out the high-yield debt before moving on to next steps. The one exception, you could argue might be this idea of an emergency fund. (But for me, I’d still rather get rid of the debt first).
Step 3 – Set up an Emergency Fund. Like I said before, you may want to do this during or before you go after your debt. Whatever gives you piece of mind really.
Nevertheless, because your savings rate is so much higher, we can knock this step out relatively quickly.
Basically, you want to establish some money for when life throws you a curveball. That way you don’t have to go back into that crushing debt you just got back out of.
For a much more detailed look, check out this post I wrote entitled “Emergency Fund Know-How“.
One big advantage to this emergency fund is so that you don’t have to accumulate the aforementioned crushing debt. That’s why I like this as step 3.
Step 4 – Begin Investing and keep on Investing!
There are no guarantees in this world, however, given the history of the market (and that it has always trended up over time) and given the alternative (that if I don’t invest I will definitely have to work 20 more years) this is a non-negotiable step for me.
Basically, I want to tap into that 8% annual growth. This will double my money every 9 years or so and take years off of my expected work time.
This can be a very daunting step for many, but based on my research, it really doesn’t have to be.
To see if it might be right for you, I made a post called “Investing Basics Made Very Simple“. Check it out if you are interested.
I also have an investing page of my site that has other related posts as well.
The bottom line is that if you want your money working for you, you probably need to invest it somehow. For me, I’m following the very simple strategy laid out by others, including Warren Buffet, and letting time do it’s work.
That last part is a great lead into the last step.
Step 5 – Allow time to do it’s thing!
With your savings rate elevated and your money invested, the math becomes more and more in your favor over time.
So, as I’m learning to do myself, and in the words of other FI people before me:
“Be patient and enjoy the ride.”
When, you finally reach your FI number, you can make a decision that is best for you. And if you’re anything like me, you won’t regret having had this “back-up plan” in place even if you do decide to keep teaching.
Other Benefits – Job Risk, Environment and More!
Here are some other benefits, I see them, to taking the path to financial independence (FI).
Take Healthy Risks – If we’re calling a spade a spade, then for many of us in the teaching world, the idea of “tenure” is a security blanket.
In reality, because we’re very good at what we do, we don’t actually need it per se. “They’d be fools to fire us…”
Nevertheless, it’s a reassurance once you get it. Reassurance because who knows what can happen right?
But that same security blanket can also be a governor or inhibitor of sorts as well. Maybe you see a more attractive position in another district but you don’t apply for it because you don’t want to give up your tenure.
Or, maybe you don’t take a healthy teaching risk because it goes against some new initiative your school/administration is rolling out.
All that goes away with Financial Independence. So, if you want to continue teaching, you can do it on your terms and take those risks that you deem necessary to improve your life or the lives of your students.
Sort of a ,”If they fire me, I’ll just ride off into the sunset,” way of thinking.
This sounds very liberating, and my guess is, that once you take those chances and receive appropriate accolades for them, you’ll wonder why you didn’t start sooner!
FI can allow you to take those risks. This ties nicely into another potential benefit.
Drastically Reduce Stress!
There is something about having a plan that I find very reassuring. Now, instead of feeling somewhat rudderless and buying things because “what else am I going to do with this extra money?”, I have a direction and a plan for it.
On top of that, I also feel reassured that I am taking care of my future self. No longer am I beholden to a “full pension” to care for me in my wearied, battered state after 30+years of teaching (that’s where I’d be, but may not apply to you!).
Now I have a FI number that I can aim for, and a plan to get there.
Knowing my direction and that I’ll be taken care of have drastically reduced my “long-term stress”.
If you’re deciding whether to take this path, ask yourself if it would have the same effect on you as well. And is it worth it to you?
For me, it absolutely is!
Environment – Reduce Waste and Energy Expenditure
There are all sorts of stats out there about what percentage of the stuff we buy ends up in a landfill after the first year (hint: it’s high and it’s alarming).
But really, my outlook on it is a little more long term. Basically, I think, “It’s all going to end up as trash at some point.”
Whether it’s this year or in 15 years, or even 100, the stuff we buy becomes trash. So, if you are on a path to financial independence and consequently saving much more of your money, then you are most likely buying less stuff.
Whether it’s intentional or just a helpful byproduct, you are buying less materials and creating the demand for less of it to be made. This leads to less trash.
It also leads reduces clutter! Clutter subconsciously sucks your energy and I want no part of it. But the unfortunate reality (at least for me!) is that it is much harder to get rid of something than it is to never bring it in.
Now, with this new plan I just reject it outright and am much happier for it!
Lastly, if you are saving money, you are also finding ways to reduce utilities or travel expenses. All this amounts to less energy that needs to be created. This, in turn, is also better for our environment.
More Time!
In the FI world the refrain “time is your most precious, non-renewable resource,” comes up time and again.
I’m on board with that line of thinking and it’s why I’m heading down this path. I want the option to spend my precious, precious time the way I deem fit.
And certainly, with a noble cause such as teaching, that is time well spent.
Nevertheless, it has exacted a toll on me and I want the option dictate how I spend my time, should the need arise again.
I’m currently reading Your Money or Your Life? by Vicki Robin. She is a pioneer of the FI community and wrote the book in 1992.
I’m going to do a post on it soon and will put it here shortly.
In that book she puts forth a number of thought-provoking questions/ideas to ponder. One of the questions is the following…
If you didn’t have to work for a living, what would you do with your time?
My answer? Well, certainly I’d like to think that I would still teach in some capacity, but I also know what I would NOT do.
I would not exchange emails with parents explaining whether or not their child is/is not getting enough homework (depending on the parent).
I would not write report cards that take me very long hours, and are barely read.
I would not go to staff meetings to learn about new initiatives or take “5-minute surveys” from the district that dictate my future.
I would not… pause… Oh boy, I’m starting to get revved up here! I’ve been avoiding it, but it’s time… Stay tuned for a “Why I Burnt Out Teaching” Post.
For now, let’s just say that I don’t find all parts of my teaching career to be “fulfilling.”
Getting back to the question, maybe you can see why, for me, the answer is not as simple as “teaching is fulfilling, therefore I would teach.”
And getting back to the original idea of more free time, there are a few forces at play. First, because you are consuming less, you are spending less time consuming. You are shopping less, browsing online less, taking less things to the store to be fixed, etc. As a result you have more free time in the present.
The other, more obvious one, is that because you can retire early you would obviously free up A LOT more time to use as you deem fit.
So, if the idea of more time is enticing, because it is so valuable, then this might be a path for you as well.
In Summary
Achieving Financial Independence is absolutely a path that all of us can take if we choose. It’s not reserved for a select few.
It’s also a reassuring back-up plan that has helpful byproducts of reducing stress, helping the environment, freeing up time, and allowing you to take healthy risks in your career.
By improving your savings rate, you can clear debt and build an emergency fund. Continuing on, this same improved savings rate will fuel your investments and reduce your time to Financial Independence exponentially.
For all of these reasons, I have chosen to take the path to FI, and getting there becomes a math equation.
Does this sound like something for you as well? If so, what are you waiting for?
Thank you for reading everyone! If you feel inspired to write in the comments below, I’d love to hear your thoughts? Where are you on your path to FI? Or, what is holding you up? If you have questions/thoughts, feel free to put them below or reach out and contact me independently.
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