The Financial Impact on Teachers Obtaining Their Master’s Degree

You have received your teaching certification, and now you are ready to move on to either a Master of Arts in Teaching or a Master’s in Education. At this time, it is not required to have a master’s degree to begin teaching. However, states such as Ohio, New York, and Massachusetts demand the completion of a master’s degree within five years of signing on. Depending on whether you are going full or part-time, many MA programs are completable in two years or less. Consider the impact higher education will have on your financial situation. Take into account the money coming in, as well as the money going out.

Greater Earning Potential

It is no secret that furthering your education pays you back by providing you with greater earning potential. Matthew M. Chingos is the Senior Fellow at the Brookings Institution and Research Director of its Brown Center on Education Policy.  In the June 2014 paper, “Who Profits from the Master’s Degree Pay Bump for Teachers?”, he writes, “Ninety-six percent of the 112 major U.S. school districts included in the National Council on Teacher Quality (NCTQ) Teacher Contract Database pay teachers with MA degrees more than those with BA degrees, with an average difference of $3,205 in the first year of teaching, $4,176 in the fifth year, and $8,411 at the top of the salary schedule.”The promise of higher pay is a great incentive for many teachers to get their advanced degree.

The Cost of the Program 

Yes, you will earn more money, but you may have to take out further student loans in order to cover the cost of obtaining your master’s degree. Moreover, at this point, you may already be making payments on the loans you took out when you were working towards your BA. Doubling up on loan payments is no easy feat, and will certainly eat into that salary increase. In fact, in the same paper, Mr. Chingos writes, “the teacher has to hand over his MA pay increase every year for five years in order to cover the cost of the program.” Ouch. The good news is that you will eventually come out ahead, and the degree will increase your pay for the remainder of your career.

Loan Repayment

While it can be difficult to swing two loan payments, it is possible to manage the repayment process. The following suggestions will help you stay out of default and build good credit in the process:

  • Make each payment on time. It is important to make every payment on time in order to avoid late fees, added interest, and negative marks against your credit history.
  • Make extra loan payments whenever possible. If you have received a tax return or a work bonus, make an additional payment to reduce your debt and get your loan paid off faster.
  • Call your lender if you think you are going to default. If you have an issue and feel like you might run into trouble with your payments, call your lender immediately to go over deferment options.
  • Turn to a credit counselor. If you are having trouble balancing your debt, turn to a credit counselor for advice.

It is worth the time and money to get your MA if your state requires it or you are planning on being an educator for more than five years. You may have to balance your budget carefully for a while, but it is possible, and in the long run you’ll come out on top.

Sources: 

http://www.simpletuition.com/student-loans/

http://www.teacherfinance.org/2015/03/the-different-types-of-loans-and-how-they-affect-your-credit.html

http://certificationmap.com/how-to-become-a-teacher/

http://www.brookings.edu/research/papers/2014/06/05-masters-degree-pay-bump-chingos

http://www.nctq.org/districtPolicy/contractDatabaseLanding.do

4 Basic Ways to Make Money

Many people are under the false impression that all millionaires, or at least the vast majority of them, inherited their money from family. In fact, only about 10% of American millionaires actually inherited the money they have, the other 90% made it on their own.

The question is how. What most people don’t realize is that there are only 4 ways of actually making money (if you aren’t lucky enough to have a millionaire in your family that gives it to you). This 4 Part blog series goes into a little bit of detail about all 4 ways because, frankly, understanding the basics of how to generate income is the best way to actually begin generating its. Enjoy.

The vast majority of middle to lower class in, earners make money by selling their time.

If you work at a job where you get paid for doing something specific, you’re selling your time to your employer. Now, to be sure, there are many very nice people who sell their time, and we’re certainly not putting those people down (or anyone for that matter).

The problem with selling your time is that, depending on your skills, it’s one of the worst ways to make money. In fact, in order to make a lot of money selling your time, you have to spend a lot of money gaining skills and knowledge. If you’re a heart surgeon, for example, you can make hundreds (or even thousands) of dollars per hour, but it’s also going to cost you about half a million dollars to get the education you need to do that, as well as about 10 years of your life.

On the other hand, someone who bags groceries at the grocery store, while no less of a person, gets paid less because practically anyone in relatively good health can buy groceries. The cost to learn the skill is zero but the amount of money you can make doing it  is very little.

What that means is that investing in yourself, getting an education or learning skills is the best way to make more money if you sell your time. You don’t have to go to college to do that either. You can become an apprentice and learn how to be a plumber, electrician, bricklayer or carpenter, all of whom make a very decent living working with their hands.

If you want to earn more as an office worker, learning more computer skills or other skills that employers are looking for will also increase your value as an employee and allow you to make more money selling your time.

The key is basically to increase your value as a worker so that your time is worth more money, and you earn more when you sell it.

Even Broke People Can Invest

Many American consumers (wrongly) believe that, since they don’t earn “enough” money, they can’t invest and take the risk of losing what little they do make. The fact is however that, better than the lottery, setting at least $50 a month aside for investing is at least a good start. Below are a number of tips that can help you get started on a budget. Enjoy.

If you’re nearing retirement, you can relatively easily put together a diversified portfolio by using target date retirement fund. Now, to be sure, target date retirement funds do have their critics, who say that they are “cookie-cutter” solutions that either are too risky or, conversely, not risky enough. The fact is however that for someone who isn’t making a lot of money and would struggle to put together a diversified portfolio on their own, target date retirement funds are great choice.

One of the best is from Vanguard Group, for a number of reasons. First, they have a very low average annual expense at just 0.17%. That means is that for every hundred dollars you invest, you only pay $.17 for annual expenses on it. They also have a very low $1000 minimum and a mix of both market tracking stocks and bond index funds. Even better, as the fund approaches its target date, the mix becomes more conservative.

If you’re looking for conventional stock index mutual funds or bond index funds with low minimums, Charles Schwab has five of the former and three of the latter with $100 minimums each. Another excellent reason to go with Schwab’s index funds are the fact that they have very low annual expenses as well, including .19% for their international index fund, .09% for the US total stock market fund and .29% of their total bond market fund, all three of which are excellent.

Not interested in buying index mutual funds? Then open a brokerage account instead and purchase exchange traded index funds (ETF) instead. The advantage of ETF’s is that they’re listed on the stock market and, whenever the market is open, they can be traded. Mutual funds can only be bought and sold once a day when the market closes.

Even better, there are a number of brokerage firms that will let you trade ETF’s without a commission but, before you buy those, make sure that their annual expenses are low (0.2% or better). The reason that ETF’s have lower fees as opposed to mutual funds is because the cost of handling shareholder accounts is less (being done by brokerage firms). A good mix of ETF’s to start would be one broadly diversified US stock fund, one US bond fund and a foreign stock fund.

If you can put together $1000, and actively managed fund like T Rowe Price Group’s target date retirement fund is an excellent idea. One caveat is that you have to purchase the funds in an IRA.  Scalped Investments, Artisan Funds and Buffalo Funds will, if you agree to automatically invest $50 or $100 every month, waive their regular minimums.

Whatever you decide to do, here’s the key factor to keep in mind; what really matters in the long run as far as building wealth and a decent retirement nest egg is concerned is not only the amount of dollars you put away but putting away something every month.

Why Easy Credit Sucks

One of the easiest ways to understand why more young American adults have debt rather than savings is simply this; while it can take an entire year to save $1000 if you put $20 a week in savings, opening a credit account with $1000 in credit takes only a few minutes and can be spent in less than a day.

The problem is, while “easy credit” is an expression used every day by consumers around the country, no one talks about “easy savings”. In fact, according to a recent study by Bankrate.com, nearly one out of four American consumers have more credit card debt then the amount of money they have in an emergency savings account, which is not very good at all.

Younger consumers have even more of a challenge due to a number of things, including student loans, young families and the perceived need to “be hip”. Those include subscription services to called brands for things like beauty supplies, lifestyle products and so forth, which can easily run between $10 a month to $50 a month.

One of the bigger problems is also that many young Americans are now staying in their parent’s home longer, which means that they have a lot less bills to worry about and, instead of putting their money into savings where it should be (and where it can earn compound interest for a much longer period of time) they end up spending most of their money on socializing, consumer goods, electronics and so forth.

Indeed, setting aside an emergency savings plan to cover 6 to 12 months of bills, something highly recommended for consumers young and older alike, can seem as impossible as putting aside $1 million. Even putting aside an amount of money as small as $20-$25 a week can be overwhelming for some young consumers, due to either overwhelming bills or the fact that they simply don’t realize how much money they’re actually wasting.

Another fact that goes over the heads of most young consumers is that credit card debt comes at an extremely high cost. The average interest on credit cards is just under 16% and, on a $2000 credit card bill, would take over 10 years to pay off if only the minimum amount was paid every month. Not only that but, by the time it was paid off, the young debtor will have spent nearly $1400 more in interest payments.

The real failing goes back to both school and parents, neither of whom are teaching young people the benefits of being frugal, compound interest and having money set aside “for a rainy day”.

Instead, banks bombard young consumers with offers for credit cards that, in most cases, is like waving a steak in front of a hungry bear. It’s very difficult to keep that bear from getting that steak, and just as difficult to keep young consumers from making the mistake of opening a new credit card and quickly maxing it out.