How to become a millionaire on a teacher's salary in 10 years
The Glorious Beard family has a long-term goal of reaching a million dollar net worth within the next ten years. I'm going to be a millionaire on a teacher's salary. If you are going to have such a big and crazy goal, then you really have to have one hell of a solid plan. How do you come up with a plan for something so ridiculous sounding? Your first step is to absolutely, positively, 100% believe in your mind that your crazy-ass goal is possible. If you start there, then your mind can start working on the problem in the background. Eventually, out pops a basic idea, and then you're off to the races refining that idea until you have a plan to achieve your crazy goal.
My wife calls me "The Weasel" because of my incredible ability to "weasel" the things she and I want. As one example, she wanted to travel around Europe when we retired. I told her that idea was stupid, and that we needed to travel around Europe RIGHT NOW! So I put that goal in my mind without any idea how we would accomplish it. After a while, the idea formed, and then the plan, and then the execution of the plan, and now we are traveling around Europe for free and getting paid for the privilege.
The most recent goal I have been working on is the million dollar goal. How can we become millionaires by our mid-40s with a single teacher's salary? I'm excited to tell you that we have a plan, and the math works.
Millionaire on a teacher's salary - the plan.
First, our plan does NOT rely on building a business or trying some sort of money making in real estate with NO MONEY DOWN! We're not relying on some stupid multi-level marketing, or making money blogging, or anything that goes outside of my job as a college professor. I do some pretty high-paid consulting on the side, but that income is not reliable and is unpredictable. So I've made it a point to base our plan solely on my guaranteed income. Everything else will just shave years off attainment of the goal, or provide insurance in case something goes south (medical bills, stock market crash, whatever).
We have a good head start and I make what I think is a pretty ridiculously large amount of money for what I do. So how applicable this plan is to you, I don't know. And don't start crying in the comments about how most teachers don't make as much money as I'm reporting, because I happen to personally know teachers in my low-cost of living and "low paying" local school district that make more money than me because they seriously hustle in the summer. Whenever you hear a teacher complain about their salary, ask how much they earn in the summer. If they tell you they earn nothing, then they aren't working hard enough. Personally, I think school teachers should make more than they do, but that really is not relevant to this discussion.
The big point here is that I want it to be clear that my plan to become a millionaire on a teacher's salary involves only my salary and anything I can earn in the summer. Every teacher needs to be hustling in the summer. Period.
First, I'm going to lay out our expenses. These are actually or near future expenses, because the short term plans involve killing a bunch or debt and reducing our costs. These numbers are based off of actual trends, I've just rounded the numbers up a bit so there aren't a bunch of weird cents here and there. The numbers we're cutting are known cuts, because the income we have coming in to destroy those costs is guaranteed. So without further ado ...
The first thing I want to point out is that this is straight-up fancyliving. We have a dedicated wine budget. We attend a weekly wine tasting at a local store ($4) and walk out with two $8 bottles of really good wine. Cutting that was a no go with my wife, and I agree. It's a chance we have to do something nice together without the kids. It's worth it.
Our homeowners insurance looks insane, and that's exactly because it isinsane. This is one of the drawbacks of living in a coastal region prone to hurricanes. We're way inland, but we're still charged through the nose. It is balanced by the fact that we have ridukulously low property taxes.
Our vacation fund adds over the year for a total of $2,500. We can do a lot with that. My wife and I are heading to Dublin, Ireland next year on far less than that, because I combine my paid-for public speaking engagements with a little family travel. Eating out? Yeah, we do that. We've got budgeted enough for the family to go out once per week to this cheap (but fancy) pizza place, while having some money left over for either me or the wife to go out with friends. We alternate weeks for that. You might notice no car fund. We have a used car with 60,000 miles on it that will be completely paid off next month, and we anticipate driving less than 10,000 miles per year. We shouldn't need to buy another car in the next 10 years. But if we do ... I deal with that below, so patience.
So you see, with this budget we're really living the fancy life, as I see it. There is no deprivation here. We have plenty of places to cut from this budget, but to accomplish our goal, we really don't have to.
Now let's look at the annual income:
I earn a base salary of $69,000 per year for the 9 teaching months that I am under contract. They spread the payment out over 12 months, though. I can also earn 30% of my base salary in the summers by teaching summer courses, or getting paid through grants, or some other options all of which come through the school where I work. I can earn this much summer money without fail every single summer that I want to. And I work my tail off every summer in order to earn that extra 30%.
The net salary shown there is after all payroll taxes, federal and state taxes, health insurance premiums, and mandatory contributions to retirement are pulled. This leaves an always reliable 74% take-home pay. I add back in the mandatory retirement contribution because that's mymoney that goes in a TIAA-CREF account I control. They "force" us to contribute 6% and the school kicks in 5%. Of course, I'll be contributing way more.
Our savings rate
So now let's compare the income with the spending and calculate my potential savings rate.
A 52% savings rate is completely possible while living an absolutely fancy life. I'm not even making six figures over here. If you do make six figures, and you can't live a gloriously bearded and fantastically rich life, while at the same time saving at least 50% of your income, then you're doing it wrong.
According the the shockingly simple math behind early retirement, that has anyone retiring in less than 17 years, assuming they start from ZERO. Not just millionaires, but able to completely walk away from paid work forever. We will actually be able to "retire" way before 17 years, and probably before the 10 year goal is up, because we have a head start and we don't need $1 million to retire. I kinda love my job, though, so there really is no reason to quit. I can just cut back on the summer work and the other extra stuff I do, since I won't need the money.
On our plan, we'll be saving $39,759 per year. That's a little sickening when I know we haven't come close to that in past years, meaning we've blown at least $30,000 per year on bullshit! Now that we're NOT being stupid, let me tell you were that money is going to go:
The table above lays out our current account balances (rounded a bit), our expected annual contribution, and the potential 10-year balance on the accounts.
The TIAA-CREF account is for our tax-advantaged employee plan. The max contribution is $18,000 per year. That will go up with time, but so what. Let's forget that right now. Since we make a combined income below $98,000, we can contribute the maximum to an IRA on top of our contributions to my employer plan. That's an additional $11,000, $5,500 for both me and my wife. We'll also be making a $500 per month contribution to an after-tax investment account, as well, since we've used up our tax-advantaged options and I want some money to use before I'm 59.5 years old.
For the 10-year projections, I assume a 10% rate of return. Usually, you would assume a 7% rate of return, since the market reliably goes up 10% per year over the long term, with inflation eating a 3% chuck. Our goal isn't to be millionaires in 2016 dollars, but just plain old millionaires. I will point out that I've included no raises in this plan or additional income, so we could still be millionaires in inflation-adjusted dollars. We could also end up with friggin' half that if we manage to fall into a really bad 10-year period for the market. Whaa! we only have a half-million. Who's crying with me?
Becoming a millionaire on a teacher's salary with no deprivation
Now I want you to notice something pretty awesome about this plan. Notice the annual savings contribution of $35,000 and compare it to the left-over money per year after expenses, $39,759. That's a difference of about $5,000 per year that I haven't dedicated to our millionaire plan.
I'm really happy knowing that we can reach my goal of being a millionaire on a teacher's salary without worrying about a raise, and without worrying about ANY side hustles other than summer teaching, and still have over $5k to blow on crack or meth or beard oil if we want to. Obviously, we probably won't do that. But life does throw curve balls. We have an additional $5k per year to cover any poor spending months, unexpected medical expenses, once-in-a-lifetime money-costing opportunities, a broke-ass car (told you I'd get back to that), emergency beard care, or whatever. And if we don't end up needing that $5k, then we can save it, too, and we've cut the number of years towards or goal. Hell, just half that amount saved each year shaves 2-3 years off of our plan.
What we actually plan to do with the money is pay down the mortgage and pay off the student loans. We're planning on aggressively fighting that student loan monster while taking a less aggressive approach to our 3.5% fixed-rate mortgage. If all goes well, then we'll be completely debt free including the mortgage within that 10 years. That will involve some side hustle, though, and it's not mission critical for our goals.
What this also means is that you don't need my almost $90k salary to do the same thing. At around $80,000 per year gross, you could pull off the same feat while still living as rich and fancy a life as me and mine. You could probably do it at $65,000 per year gross if you cut a little of the fat I have in my budget. And if you make six-figures and can't come up with a plan to save a cool million dollars in under ten years, then for god's sake please shave that beard, because you don't deserve it.
So that's my plan to become a millionaire on a teacher's salary in ten years. What are your goals and how do you plan to achieve them?
UPDATE: In our spending, I have included the principle portions of our payments on the mortgage and student loan. If I take the Mr. Money Mustache approach of including that in my savings, instead, then our savings rate shoots to 62%. That could make me a millionaire on a teacher's salary even quicker!