The 5 Foundations of Personal Finance for Education Professionals

As a professional educator, you spend your time investing in the next generation as an educator or purveyor of knowledge, helping them build a solid foundation for the rest of their lives. You know the importance of planning for the future. You understand how valuable the right knowledge can be for creating a successful life.

Yet, when it comes to your own future, the outlook often holds some uncertainty, especially in the realm of financial security. You need a clear, straightforward plan to ensure the rest of your life is as hopeful as the one you encourage your students to create.

To build that security, there are five personal finance foundations to establish now that will alleviate the stress of any unknown scenarios the future may hold.

In a snapshot, they are:

  • Saving for Retirement
  • Spending Wisely
  • Investing Properly
  • Planning for Taxes
  • Giving

Let’s take a closer look at each step.

1. Saving for Retirement

Planning for retirement is a necessary foundation for personal finance. Yet, one of the greatest fears among professors, researchers, and administrators when it comes to retirement is the prospect of outliving their income.

Why is that? If you are saving regularly into your retirement accounts that should be adequate planning, right?


Here’s what you need to consider. As a professional hired by an academic institution, you have a few things going for you that can lead to a comfortable retirement. You have the opportunity of pursuing a tenure track. This carries many benefits, including providing job security and favorable compensation.

However, a sound financial plan relies on more than just financial assets, like 403(b)s and pension accounts alone.  It also relies on human capital, which is the wealth that is accumulated from your wages and salary.

If you aren’t sure you are saving enough, a good rule of thumb is to save more than 15% of your income toward retirement.  Academic institutions often pay a higher employer match than other employers.  Therefore, there is a good chance you are meeting your saving targets with your employer’s help. Plus, if you want the option to save more, institutions often offer accounts for employee elective deferral, allowing you to put more toward your future lifestyle than your mandatory contribution.

2. Spending Wisely

Being a professional in higher education, whether a professor, researcher, or administrator, typically affords you a steady and comfortable income that allows you to enjoy money consistently and with some big fluctuations without a problem. After all, it’s easy to adjust your lifestyle over time to your level of income.

You might want to travel to conferences or take your family on vacation. Perhaps you want to pay for your child’s college education at a reputable school. You might even want to invest in energy upgrades in your home because the science behind the math tells you this investment will pay off in the long run.

All of these expenses might be easily manageable when you are taxed on your steady income, but this can become a problem when you are drawing funds from a taxable account, such as your 403(b).

The future always holds unknowns that can change the trajectory of your financial status. Unexpected health problems, changes in tax laws, inflation, higher than expected education costs, relatives needing your help, and so on.

Learning wise spending habits now, saving for the unexpected, and making purchases with your future lifestyle in mind will help you build a solid personal finance foundation that enables the life you want in retirement.

3. Investing Properly

Perhaps the most important personal finance foundation for professionals employed by higher education institutions is investing. No one needs to be convinced of the necessity of planning for the future. But how that planning should happen raises many questions and concerns.

Every investment carries with it an element of risk. Invest too conservatively and you could be the victim of the next bear market and lower than expected future returns. Investing too aggressively in hopes of a big return may cause a devastating blow to your financial outlook if you aren’t prepared to weather the storm over the long term. Even another financial crisis could loom, carrying with it the threat of crippling your portfolio too close to retirement.

Either way, the fear remains the same: running out of money with life left to live is a sobering prospect.

There are several ways to inoculate your retirement investments against uncertainty, the right mix of assets and the diversification of your investment portfolio being key. Adding IRA’s, making Roth conversions, contributing regularly to your existing accounts, and rebalancing your investment accounts themselves are ways to manage risk in your total portfolio.

Also, planning ahead for large expenditures during retirement helps you avoid spending down your retirement savings too quickly.

There is a temptation to simply follow the advice of your parents and grandparents, but history proves this is not necessarily a wise decision. The nature of investing is an ever-evolving landscape.

Talking with a professional financial planner can give you a secure financial outlook for any future that lies ahead.

4. Planning for Taxes

No matter where you are in your academic career as an educator, researcher, or administrator, building a solid financial foundation is not something to put off until some future date or event. Even though you have the opportunity of making a good living and long-term job security, the future is still approaching closer every day. Ben Franklin’s age-old adage about death and taxes still rings true. Planning for both requires a prudent financial approach.

Even if it’s a long way off, there is a lot to look forward to in retirement. You may want to travel more, invest in your children and grandchildren, or buy the house or boat you’ve always dreamed of owning, or sell a large asset. However, those large transactions might also carry hidden tax costs, and without a clear understanding of what’s at stake, it could cause a devastating blow to your nest egg.

You are not likely to spend the same in retirement as you do in your working years. There will be periods of higher and lower spending which cause tax liability.

Plan ahead by creating tax-protected retirement accounts. Allocate money specifically for large expenditures so there is no negative effect on your retirement accounts.

5. Giving

Perhaps the most rewarding attribute of an affluent, stable income is the ability it provides you to give generously to things that matter to you.  Whether you want to support a cause near to you through a charity, give to your church, or help your family, your financial decisions now will create the margin – and even abundance – to afford it.

A strong personal finance foundation is the prerequisite to building wealth. If we’re honest, building wealth is really the goal. The most responsible thing you could do is not just to provide yourself a comfortable retirement, but to create wealth that can be shared with others or that long outlives you.

Plan not just for your own future, but for the legacy you want to leave. Give to things that you want to live on after you’re gone. You’ve invested your time and energy into others throughout your career. Now, create a plan to invest in them even after you’re gone.

If you’re thinking about the future (who isn’t?) and need a clear path to the life you envision after education, talk to us. We’ll help you create the financial security and wealth-building foundations you need to live a long, vibrant, worry-free life.

Stop guessing. Start planning.