Be a Positive Saver!

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Saving money can be a challenge. It takes determination and some financial skill to keep money in the bank rather than spending it. If you’re like many educators, you probably have several motives for not saving, which may include having to pay for everyday expenses, loans, school supplies, rent, tuition or child-rearing costs. In addition, if you receive your paycheck monthly, it may sometimes seem as though you have more "month" than money left before your next payday. It's even tougher if you get paid tenthly – you need to budget carefully to make sure you can cover your expenses over the summer months.  

While all these reasons are legitimate, it’s not impossible to save on a regular basis.

Stay One Step Ahead

Unfortunately, some educators are just one financial setback away from disaster. What happens if your car needs a new engine, your washing machine quits working or the family pet needs major surgery? Even if you don't have a financial emergency, are you prepared to cover your expenses over the summer when you aren't working?

Without adequate savings built up, you may find yourself without a ready source of income in an emergency. With a savings plan in place, you can help avoid financial worry now and in the years to come.

Saving your money can also help you achieve financial goals. Maybe you’d like to help your children with future college expenses or place money aside for a home remodeling project. Whatever your ambitions, a good rule of thumb is to save early and consistently. Placed in a savings account or certificate of deposit, your funds will have the chance to earn interest – meaning that your money will earn more money over time. And here's a tip: Use direct deposit into your credit union or bank savings account. You'll be less likely to spend the money if it is automatically deposited.

In addition, having an emergency savings fund can help you avoid the need to take a hardship withdrawal from your 403(b) or 457 plan, which can negatively affect your ability to save for retirement.

Starting Out

Here are some valuable tips to help you get started:

Consider joining a credit union. CTA endorses two credit unions (see below), and there are several teachers' credit unions in the state. Credit unions, unlike banks, are not-for-profit and owned by their members. Generally, they offer higher savings rates and lower loan rates and fees than most banks. In addition, if you are paid 10 months of the year, your credit union may have programs that help you manage your expenses during the summer months. Finally, just as deposits in banks are insured by the Federal Deposit Insurance Corporation, the money you put in a credit union is insured by the National Credit Union Administration, up to $250,000 per depositor.*

For services such as free checking, online banking, bill payment, auto loans, first-time homebuyer loans, money market accounts, new teacher loans and other financial services, contact Provident Credit Union at 800/632-4600.

Set reachable goals and be specific. For example, if you would like enough money to cover all your holiday spending at the end of the year, figure out how much you usually spend and divide it by the number of months you have until you need the money. Even $25 a month put into a savings account could come in handy.

Use direct deposit. Have your emergency savings automatically taken out of your paycheck and put into your savings account. If you don't "see" the money, you're less likely to spend it.

Begin today. You never know when you'll need your "rainy day" fund, so it's best to start now and keep saving consistently.

* After December 31, 2013, the basic insurance limits will return to $100,000, barring further legislation. Certain retirement deposit accounts will be separately insured up to $250,000.

Advanced Saving

Your home mortgage is likely one of your biggest expenses. Over the course of 30 years, the amount you pay in interest may end up cost more than the purchase price of your home. One way to spend less on interest is to take out a 15-year, rather than 30-year, mortgage. Although your monthly payments will be higher, you'll pay the loan off 15 years quicker and save thousands of dollars in interest. Here's an example:

$400,000 30-year fixed-rate mortgage at 5.5% $2,271.15/month
Total interest paid over 30 years: $417,616
$400,000 15-year fixed-rate mortgage at 5.5% $3,268.33/month
Total paid interest paid over 15 years: $188,300

Of course, you may not be able to afford the higher monthly payment each month, especially in your early years as an educator. So a 30-year mortgage may be more affordable. However, as your salary increases, you may want to consider adding extra payments to the principal each month. Make sure your bank or credit union doesn't charge a fee or penalty for prepayment, and then send in an extra payment each month (or whenever you can). That way, you aren't tied into a higher monthly payment, but you can reduce your principal – and thus the amount of interest you pay – much more quickly.

This following assumes a 30-year, fixed-rate mortgage for $300,000, an interest rate of 7%, and 25 years remaining on the loan. In the first illustration, the homeowner starts paying an extra $100 a month after the first five years. In the second, the homeowner pays an extra $300 a month and saves nearly $100,000 in interest over the life of the loan.

$300,000 Original Loan
Monthly scheduled payment: $1,996
Total scheduled payments: $718,524
Additional monthly payment: $100/month
Total accelerated payments: $675,261
Savings: $43,263
Additional monthly payment: $300/month
Total accelerated payments: $618,718
Savings: $99,806