Critical Considerations University Faculty Can Make with their Finances
Being a university faculty member myself, other faculty members often ask me some key considerations to ensure their Personal Finances are in good order.
As you know, working in higher education is rewarding and challenging. The rewards are obvious serving others and their passions. But there are also challenges with the pay not generally keeping pace with inflation (or not increased much at all!), cutbacks to programs, and continued oversight and scrutiny (Aka bureaucracy).
So what are some of the key considerations to make sure you at least keep your fiscal house in order under the 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 upwards of 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 members' contribution. For example, up to age 50, you can contribute up to $19,500 per year in 2021 into a 403(b) plan, and part of this could get a match. If you are lucky enough to have a pension, you can save additional money in a defined contribution plan such as a 403(b) or 457 available with your university and/or open an IRA. Just don't save the minimum for your retirement. It is essential to be an active saver and save around 20% of your gross income for retirement and other long-term goals.
2. Budget, budget, budget: If you are new to a faculty position and perhaps just finished your Ph.D. and all of a sudden, you 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%. Obviously, paying off student loans and high-interest debt such as 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.
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. Making the right choices for you and your family is important. Oftentimes if your spouse does not have good employee benefits at their job, 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 are taking full advantage of them.
4. Review your investments: It is always good to review your 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 even logged into your retirement accounts recently (or at all)? Oftentimes we ignore investing and finances because they are not enjoyable. Unfortunately, this tends to backfire. 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 next grant or paper you are about to submit, or the unexpectedly large class you 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 that 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 the services that I offer.
*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 any Federal Government tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal 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.
