Spending Problem? Try This!

Recently, I was taking in some content by an expert in psychology and money, Brad Klontz.  He studies how people make money decisions and the emotional barriers that exist to making good decisions.

One of his tips to help people spend less money was to put a note in your cell phone that would have the following questions:

  1. Do I really need this?

  2. Do I have room for this?

  3. What if I wait to buy this?

  4. How will I feel tomorrow if I buy this?

He suggested every time you are about to make a purchase you take your phone out, look at and answer each question before you buy the item.  If you still think you need/want to buy it, then buy it tomorrow instead of today.

We all know people who have major difficulties spending too much.  This might even be you! As I discuss money with people one of the most common things people say to me is how they struggle with shopping and/or over spending.

Trying to use willpower sometimes isn’t enough.  Our emotions get in the way.

Having spending rules and systems can keep these emotions in check.

This is why I have been a long advocate for the 24-hour rule for large purchases.  If it is a good buy, it will be a good buy tomorrow. If it is not a good buy, you give your rational part of the brain time to think instead of just letting your emotional part of the brain be in complete control in the moment.

This additional action of answering these questions forces your rational brain to get involved in the decision.  It might be just what you need to avoid making a spending mistake you will regret.

Our emotions get involved in our financial decisions all of the time.  In many ways we are hardwired to do things wrong. Having rules or a systematic way of making choices can help improve our chances of keeping us on the financial track we want to be on.

My District Just Offered an Early Retirement Package… Now What?

“I am getting out of here as fast as I can.”  

This is what a friend of mine had said for the past ten years.  But, now the reality has hit. He is eligible to take IPERS (his pension plan) and his school district has offered a generous early retirement package.  He can finally do what he has said he would do all these years.

But now he is having second thoughts.

He still loves what he does and is not sure what the next stage of life would look like.  Maybe you are in this situation as well. What should you do?

The Early Retirement Package

School districts have a monetary incentive to get their more seasoned teachers to leave the district. They can hire a younger replacement for much cheaper savings thousands of dollars per year. Some districts attempt to quicken the decision by offering an early retirement package.

The specifics of this incentive vary from district to district but they usually have one or more of the following components:

  • Access to district health insurance for a period of years.

  • A cash payment usually based on salary or amount of years worked in the district.

  • A cash payment for sick days accumulated.

If you are eligible for these benefits it can bring a lot of anxiety as you begin to ask yourself, is

this something I should be thinking about? This, of course, is a major decision that should not be taken lightly.

Below are some things to think about as you consider the specific offer on the table:

What will you do next?

Whether you are going to completely stop working, enter the substitute teaching pool, or do something entirely different, one thing is for sure:

Change is not easy.

Many of you have been in education for many, many years. Teaching may be your main

identity. Giving that up may have some emotional consequences. It will definitely be different.

Reflecting on whether you are prepared for what you will be doing next and whether you will be happy as a result is important.

There are many examples of people not knowing what to do when they retire. Some are miserable. Some have difficulty staying active and their health declines. Many have a difficult time finding meaning in their life.

It is worth taking time to address important considerations:

  • What your lifestyle will be like.

  • What you will do with your time.

  • The hobbies you will have.

  • The potential activities that will motivate you.

The best way I have heard it asked… “What are you retiring to?”

Retiring to an activity or job is typically a better scenario than just retiring to get away from the day to day grind of the classroom.

How will you pay for health insurance?

This is a major consideration for anyone under age 65, the age when you become eligible for

Medicare. Health insurance costs continue to rise and this can be quite a burden. Depending

on your age, this may be an issue to deal with for many years.

If you are close to 65, COBRA may get you to Medicare.  This will give you access to the district’s health insurance policy for up to 18 months.  This option can be costly because you will most likely have to make the entire premium payment each month, both what you have been paying as well as the amount paid by your school district.

Another option is the health exchange (www.healthcare.gov).  Because you would be changing status from employed to retired, you would be eligible for coverage in the plans listed.  

If you are married, going on your spouse’s health plan with their employer may solve the problem.  This may be temporary depending on the age of your spouse and when they plan to retire so that should also be considered.


What will be your pension income?

Most of the time a teacher taking an early retirement package will begin taking their monthly

benefit from a pension. It is important to know exactly what the income would be if the decision

is made to take pension income.  Your pension provider can run you an estimate to give you good numbers to work with.  

Compare the the numbers of retiring today to retiring in later years.  It is possible that waiting another year or two will drastically change your financial situation.  

In Iowa, where I live, it is important that teachers know that IPERS benefits are not inflation

adjusted over time. Once you start those monthly benefit checks, the amount will not go up, but

costs surely will.  Every year you receive the same amount of money but your check will buy less and less!

Another reason to get an estimate from your pension plan is because you most likely will have some choices of how to take your benefit. (single annuity, joint annuity, etc.) Work with your financial planner to help you determine what is the best for your particular situation.  

What is your plan for taking Social Security benefits?

If you are going to make a major decision affecting your retirement you will want to map out your

whole retirement situation. I like to think of it as a puzzle. There are many different pieces that you need to figure out how they all fit together.

Here are just a few of the pieces to identify and think about:

  • Other sources of retirement income you have.

  • Which accounts will be withdrawn first.

  • How personal savings should be invested.

  • When Social Security benefits should be taken.

  • Tax considerations.

You do not have to take social security when you leave your job.  You can delay it until age 70 or take it as early as age 62. There is a major difference in monthly payments based on when you do start taking the benefit.  

Social Security benefits are based on a 35 year history of work or a spouse's work history.  So working 1-2 extra years will not typically change the payout much. But delaying the benefit will.  

There are great reasons to delay, but your whole retirement situation should be taken into consideration.

Make sure you have good reasons for taking Social Security in whatever time frame you plan.

If you are married, Social Security should be a decision that is made with the household in mind,

not just you as an individual. What your spouse does may have huge impact on you as well.  Especially after one of you dies.

Your unique situation

As you can see there are many things to consider. Your situation is unique compared to others

so make sure you take your specific situation into account as you look at this. I have only

outlined some of the issues that could be involved.

I know of retired teachers who are loving their post-teaching lives. Some even wish they would have done it a couple years prior when given the first opportunity. On the other hand, I know of others who wish they were still back in the classroom for various reasons.  And still others who probably shouldn’t have made the jump, based on their finances. Because there is a lot to think about, make sure you look at the whole picture.

I wish you luck as you consider this choice, and am happy to help walk you through the choices.

Do You Have a Giving Goal?

I just set some goals for the year.  Career goals, health goals, relationship goals, and of course financial goals.  

When it comes to setting financial goals, often giving is an afterthought.  

Set a goal for giving

I believe giving should be focused on throughout one’s life, not just at the end.  Instead of giving when we have a little extra laying around, shouldn’t it be a priority that we plan for?

Saving 10%-15% for retirement is often a stated goal. Why not have a similar giving goal?

What is your goal for giving?  Examples may include:

  • Give ____% of my income.

  • Give $____ away every week.

  • Help ______________ charity by volunteering _____ hours per month.

Notice this can be a monetary goal or a time goal.  Just like every goal, keeping track of it is important.  You can monitor yourself and measure whether you are actually achieving the standards that you set for yourself.

Incremental Growth is your Friend

Some would love to give 10% of their income away every month.  But that may be difficult because of their current financial challenges.  Don’t let that stop you from improving your current giving situation.

It is okay to start slow.  The key is to start! Maybe 1-2% of your income is a realistic goal.  Then you can work to increase it every year.

With our clients who are not saving enough we try to help them set a mindset of incremental growth.  For example, they may only be saving 3% in their retirement plan now, but if they increase it by 1-2% each year they can get to their goal of 15% in less than 10 years.  Many times this can be implemented when they get a raise in income so that the pain is minimized and the success rate increases. This type of plan is better than going 10 years of not changing things because they never get to the point where they feel they can afford to save more.

Why not take this idea and implement it with your giving?

Steps to implement

Step 1: Find out what you are currently giving.  Try and figure out a percent of your income.  If you don’t have good records, promise yourself to keep track from now on and go onto the next step.

Step 2: Set a giving goal.  (i.e. “10% of our income”)

Step 3: Put together a realistic plan to get from where you are at and to your goal.  Use incremental growth of at least 1% increase per year, if needed.

Step 4: Create a system to track your progress.  Then monitor that progress over time.

Some say the best way to understand a person’s priorities in life is to look at how they spend their time and money. Most of us want to help others more. Create a goal for yourself today!

The First Day of School

Today is the first day of school.  It is also the first time in 17 years that I will not be starting the day in front of a class full of high school seniors.


I have mixed emotions.


Even though I have been working through the summer as a full-time financial planner, today is the first time it has really hit me that I will no longer be teaching in the classroom.  I knew it would be weird as school started but I guess it is natural to be grieving a bit.


The first day has a special energy to it.  I am imagining myself in my classroom teaching my first lesson to a group not quite ready to be there.  My goal is to have them say, “Econ may not be that bad after all!” and have them understand why studying economics is important. You put yourself out there in front of 30 students six times throughout the day.  They get a chance to know you for the first time and you get to begin the process of getting to know them. Each class period has their own unique personality. It will evolve over time but you begin to see glimpses of what it will be that first day.


I loved teaching.

I loved the challenge of getting students to enjoy economics.

I enjoyed getting to know all of my students on a personal level.

I cherished the bond of friendships with my teaching colleagues.

I definitely loved the chance to help around 300 high school seniors each year learn the knowledge and skills needed to become financially successful in this world we live in.  This was my passion.


That is why it was a tough decision to make.  But I had a second passion as well.


As a financial planner, I am still teaching.  I teach individuals and couples in an intimate setting as I walk with them on their financial journey.  I have even had the opportunity to teach other teachers about their financial opportunities at a couple of conferences and during a 2-day class.  I hope to do more of this.


I have no regrets.  This job is awesome too!


Just yesterday, I was at a coffee shop working, when someone came up and said hello.  It happened to be a former student of mine who graduated about ten years ago. He has gone through some tough times over the years and is beginning to turn his life around.  Because of this past, his finances are a mess.


In about 30 minutes I was able to hear his story and give him some quick thoughts on a few next steps he can take to move forward toward a stronger financial footing. I gave him some resources to check out on his own to help him along the way.  We agreed to stay in touch.

I also think about the impact I have had on the clients I have worked with over the 4 years I have done this part-time.  Just like teaching, the ability to make a difference in people’s lives is tremendous.


But I will definitely miss being a classroom teacher.


Thank you teachers and others who work in our schools for doing your best each day to make a difference for your students and our future.  Have a great year!

Student Loan Forgiveness for Teachers

Even though I frequently get questions from teachers about student loan forgiveness programs, there are still many who don’t know that forgiveness and cancellation options exist.  In fact, some of these programs were set up specifically for teachers.


Those that do know that programs exist, can quickly get overwhelmed by the different plans and how to decide which, if any, would be the most appropriate for them.  In this post, I tried to organize the different plans so that you can quickly figure out if they may be an option for you.


First, I should note that private student loans are not eligible for these forgiveness programs.  If you are struggling with these type of loans you will have to call the lender directly and see if they will work with you.  Also, it is important to understand that if you consolidate your federal (public) student loans into a private loan, most likely you will lose eligibility for these and any future forgiveness options.  If you are unsure about the different types of student loans, HERE is a primer.


Here is a look at the available ways that teachers can potentially get student loans forgiven.


Income Based Payment Plans


When you begin paying back your federal student loans you will choose a payment plan option.  You can choose the standard 10-year plan, graduated plan, extended plan, or an income-based option.  People struggle with what is the best option for them.


Income-based options come with a potential added benefit of forgiving any balances that remain after a certain amount of years.  This can greatly help those with low incomes or very high loan balances.


The government keeps adding income-based plans so it can become confusing pretty fast.  Currently, there are 4 income-based plans that can end up in student loan forgiveness: IBR, PAYE, RePAYE, and ICR.  Here is a quick rundown of each plan:


Income-Based Repayment Plan (IBR)


  • For loans issued before July 1, 2014:

    • Payment max of 15% of your discretionary income.

    • Remaining loan balance is forgiven after 25 years of payments.

  • For loans issued after July 1, 2014:

    • Payment max of 10% of your discretionary income.

    • Remaining loan balance is forgiven after 20 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.


Pay As You Earn Repayment Plan (PAYE)


  • For direct borrowers, if received disbursement on or after Oct. 1, 2011.

  • Payment max of 10% of your discretionary income.

  • Remaining loan balance is forgiven after 20 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.


Revised Pay As You Earn Repayment Plan (RePAYE)


  • For all direct borrowers no matter when the loan was taken out.

  • Payment max of 10% of your discretionary income.

  • Remaining loan balance is forgiven after 20 years of payments. (if all loans for undergrad)

  • Remaining loan balance is forgiven after 25 years of payments. (if ANY loans for graduate or professional)

  • If any amount is forgiven it will be considered income on that year’s tax return.


Income Contingent Repayment Plan (ICR)


  • All direct borrowers qualify.

  • Payments will be lesser of:

    • 20% of your discretionary income.

    • The equivalent of a fixed payment plan of 12 years, adjusted to your income.

  • Remaining loan balance is forgiven after 25 years of payments.

  • If any amount is forgiven it will be considered income on that year’s tax return.

  • Parent borrowers can use this plan if they first consolidate their parent PLUS loans into a Direct Consolidation Loan.


*You must recertify your income and family size each and every year for these options.  These changes may cause monthly payments to increase or decrease from year to year. It is in your best interest to remember to do this (they do send reminders).  If you neglect to do this, negative consequences can include a sharp increase in monthly payment or disqualification of the program.


Public Service Loan Forgiveness (PSLF)


Many teachers are eligible for a program for public service workers because they work in a public school setting.  Private school teachers may be eligible depending on the circumstances. For many, this will be the best program among the bunch because it is a ten-year payment timeline (instead of 20 or 25) and the borrower doesn’t have to report any forgiven balances as income on their taxes.


  • Must be using one of the income-based repayment plans (see above)

  • Must be a full-time employee. (at least 30 hours per week)

    • Must work for a public service employer:

      • Government organization (federal, state, local, or tribal).

      • Not-for-profits under Section 501(c)(3) IRS tax code.

      • Other types of non-profits.

  • Must have a Federal Direct student loan

    • Family Education Loans (FFEL) and/or Federal Perkins Loans must first be consolidated to a Direct Consolidation Loan in order to be eligible

  • Remaining loan balance is forgiven after 10 years of payments.

    • Eligible payments are ones made after Oct.1, 2007.

  • Any amount forgiven will NOT be counted towards income.


Teacher Loan Forgiveness Program


This program is for teachers that serve low-income students and/or specific subjects of need.


  • Eligibility:

  • Maximum forgiveness amount either $17,500 or $5,000, depending on the subject taught.

    • Up to $17,500 if math or science at the secondary school level

    • Up to $17,500 if special education teacher (elementary or secondary)

    • Up to $5,000 if none of the above.

  • Any amount forgiven will NOT be counted towards income.


Perkins Loan Cancellation for Teachers


If a teacher has outstanding Perkins Loans (which are need-based student loans) they can get up to 100% of the principal balance cancelled after five years.


  • Eligibility

    • Full-time teacher in public school or nonprofit school system and one of the following:

      • Teacher in a school serving low-income families.

      • Special education teacher

      • Teacher of math, science, foreign languages, bilingual education, or shortage area determined by your state education agency.

  • Cancel up to 100% of a Federal Perkins Loan.

    • 15% cancelled for the 1st year

    • 15% cancelled for the 2nd year

    • 20% cancelled for the 3rd year

    • 20% cancelled for the 4th year

    • 30% cancelled for the 5th year

  • Any amount forgiven will NOT be counted towards income.


State Programs


Some states have additional loan forgiveness programs for teachers and others.  The easiest way to find this is to just Google “teacher forgiveness your state”


For example in Iowa, where I live, the state has the Iowa Scholar Program:


Teach Iowa Scholar Program (TIS)


  • Eligibility:

    • Graduate on/after January 1, 2013.

    • Graduate in the top 25% academically of your teaching program.

    • Full-time employment in Iowa in a designated shortage area.

  • Can receive up to $4,000 per year for up to 5 consecutive years.




Deciding how to pay back student loans can be difficult and confusing.  Just getting the correct information can be a time-consuming process.


The student loan landscape is constantly changing.  Programs have been added over recent years and more could be added in the future.  Sometimes states add and drop programs depending on funding available or the political landscape.  Some workplaces are now recognizing that student loans are an issue for their workers and are offering to pay back loans for their employees over time.  Additionally, the current Trump administration has hinted at changing and/or dropping some of the federal programs outlined above.


I would also add that for many just paying your student loans down as fast as possible can be the simplest and best solution even if you are eligible for forgiveness programs.  (Check THIS story out for some motivation!)


Everyone is unique.  What is best for one person may be a bad option for another.  Looking at your whole financial picture is important when making this decision.  Considering the following may help you decide what is best for your specific case:


  • Current income.

  • Potential income growth.

  • Your comfort level of taxpayers potentially paying your loan forgiven amount.

  • Other debt obligations.

  • The political climate and possible changes to these programs.

  • Tax considerations.

  • Your tolerance of having debt.


If you would like help going through this process to make the best decision for your situation let us know HERE.

Renew, Relax, Recenter

My wife and I just did an amazing thing.  We spent Friday evening through Sunday afternoon alone... without kids!  


A couple of months ago I was listening to a podcast and someone being interviewed mentioned that a key ingredient to success is finding time for focused planning.  He said that so many spend too much time IN their business and not enough time ON their business.


I have heard this many times before in different ways but it really hit me this time.  It describes my current life to a tee. It is so easy to spend time IN our busy lives that we neglect to work ON our lives.  My wife and I have difficulty getting enough exercise, getting enough sleep, and staying on top of things in our crazy lives.  Even though we know better, it is so hard to change our patterns because we are in what seems like survival mode most of the time.


So we made a commitment to spend a weekend focusing ON our lives.


We reserved a hotel in our city for two nights.  And with the help of my wonderful mother-in-law who watched our four kids, we were able to spend time away to recharge and recommit to the things that matter most to us.  


The goal was to concentrate on some of the big picture items in our lives:


Our finances

Our health

Our marriage

Our parenting

Our daily routines


It was exactly what the doctor ordered.  Here are some brief examples of things we accomplished during our planning session:


  • We talked about what is truly most important to us and how we want to live our lives.

  • We discussed our finances and made some changes in the roles we will play in our money management.  

  • We created some specific financial goals.

  • We discussed my wife’s business and how to make it even better.

  • We committed to getting some additional exercise and made a plan of how we could realistically achieve those commitments.

  • We made some plans how to eat healthier family meals.

  • We planned out our 18-day national park vacation we are taking this summer.

  • We talked about what our life will be like when I am no longer a teacher at the end of this year and go full-time as a financial planner.

  • We ate out three times over the weekend!  Did I mention there were no kids?

  • We identified some strategies and routines so that we and our children can lower the amount of time with our phones or electronic devices and spend more time reading books.


This was time and money so well spent.  We feel like we are in control again!


We know it won’t be easy to accomplish all of the things we are trying to do and the changes we will make, but we are very excited to do our best to execute our plan.  


Everyone should do something like this.


Would you benefit from taking a weekend to plan out your life?

Are you in need of new commitments and change?

Do your routines need a revamp?

How much anxiety would be lowered if you worked on your finances?


If this sounds like something you need.  Take the leap and schedule it today!  Find a way to get rid of all the obstacles and reasons you couldn’t possibly do something like this that I’m sure you are thinking about right now.  You will not be sorry!

Types of Student Loans - An Overview

Student loans can be confusing.  Whether you are looking into getting loans for the first time or trying to identify the type of loans you already have, I hope this guide will be helpful to you.  There are two types of student loans: federal (public) loans and private loans.


Federal Student Loans


A student must complete the Free Application for Federal Student Aid (FAFSA) form to determine eligibility for the following loan programs.  This application will also determine potential eligibility for grants and work-study programs.  In addition, many schools use this to help them determine who will get financial aid directly from their institution.  Below are brief outlines of the different types of federal student loans:


Direct Subsidized (Stafford) Loans


  • Must show financial need.

  • For undergraduate degrees.

  • The government will pay (subsidize) the interest while still in school.

  • U.S. Department of Education is the lender.

  • Maximum amounts:

    • $5,500 for 1st year undergraduate (up to $3,500 can be unsubsidized).

    • $6,500 for 2nd year undergraduate (up to $4,500 can be unsubsidized).

    • $7,500 for 3rd year undergraduate and after (up to $5,500 can be unsubsidized).

  • Maximum Aggregate limits:

    • $31,000 (up to $23,000 can be unsubsidized).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Direct Unsubsidized (Stafford) Loans


  • No financial need necessary (i.e. Bill Gates’ children would be eligible).

  • For undergraduate, graduate, or professional degrees.

  • Interest will accrue while still in school.  Student likely does not have to pay interest while in school, although they can choose to do so.

  • U.S. Department of Education is the lender.

  • Maximum amount (see above, as explained with subsidized loans).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Direct (Parent) PLUS Loans


  • For parents of dependent children.

  • Also for graduate, or professional degree students.

  • No financial need necessary.

  • The borrower must NOT have adverse credit.

  • U.S. Department of Education is the lender.

  • The maximum amount is the cost of attendance (minus any other financial aid received).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Perkins Loan Program


  • Must show financial need.

  • For undergraduate, graduate, or professional degrees.

  • School is the lender.  Schools have limited funds to distribute.  Also, not all schools participate in this program.

  • Maximum Amounts:

    • $5,500 per year for undergraduate degrees.

    • $8,000 per year for graduate or professional degrees.

  • Maximum Aggregate amounts:

    • $27,500 for undergraduate degree.

    • $60,000 for graduate degree (includes the amount as an undergraduate).

  • Interest rates are set by Congress.  See HERE for current and past rates.


Private Student Loans


These loans are made directly from a lender, such as a bank, credit union, state agency, or school.  Typically private loans are used when a student doesn’t have enough to pay for their schooling after considering the federal loan programs for which they are eligible.


These loans can vary greatly from each institution but generally, they have the following characteristics:


  • May require payment while still in school.

  • The borrower may need a cosigner.

  • Can have variable interest rates.

  • May require a credit check which can determine interest rates and terms.

  • May not offer forbearance and/or deferment during financial hardship like federal loans.

  • Can often borrow up to the cost of attendance, if approved.


Generally, federal (public) student loans are better than private student loans, for all kinds of reasons.  So it is usually wise to exhaust federal loan options before getting private debt.


If you would like help making good decisions of how to pay for college or the best way to pay back student loans please let us know.  

How to Pay Off $66,000 of Debt in 14 Months

Checking my email one day, I came across an article posted on LinkedIn that a former student of mine had written.  I was amazed to read that he was able to pay off over $66,000 in debt in only 14 months!


In my high school economics class, I teach the virtues of saving and getting out of debt, so you can imagine how proud I was as his former teacher, to read about this great accomplishment.  So I reached out to Chris and we had coffee. I had to know more about how he pulled off this amazing feat!


All of us can learn from his journey.


Decide to Be Different


Chris told me that he witnessed the struggle his sister was having paying her student loan debt.  It impacted her life in many ways. Not wanting this to be his fate, he decided that he was going to take action and not be the typical college graduate still having to make monthly debt payments 10 years later.  


This decision to be different cannot be understated.  


For it is this step that makes someone willing to make the sacrifice in the first place that allows them to achieve better than typical results.  It is so easy just to resign yourself that you have no power to make things better and you end up doing what everyone else is doing. Chris decided that he could change his fate.


Do you want things to be different?  Are you willing to do the things that most aren’t willing to do in order to get there?


Create Multiple Streams of Income


He didn’t just use his full-time income to accomplish this feat.  He also sought out ways to make additional income. He bought and sold things on eBay.  He also became the go-to guy for his friends that found themselves with gift cards they weren’t going to use.  Chris would buy these gift cards at a discount and then sell them to others who would use them. He said this started with a few friends and then the word got out that Chris was the guy to see if you had a card you didn’t want.


By spending time with his entrepreneur hat on, he told me that not only was he making additional money, but this had the added benefit of spending less time on activities that cost money.  


If you work more hours at your job or on “side hustles” you spend less money.  There is much wisdom in this.


Find Ways to Keep Spending Low


The biggest way he kept spending in check was to move back to his parent's house.  By saving huge amounts of money on what for most of us is our largest spending category (housing) he was able to shift this money to his goal of paying down his student loans.


Now some of you may be thinking that this step is not possible in your situation.  This may be true. But don’t lose the lesson in the details. The point is Chris was able to spend low amounts on expenses that are usually high.  For most of us, these big spending categories are where the greatest amount of money can be found to change our financial path for the better. Knowing Chris, if he lived in a city far away from his parents, I think he would have been willing to live in a crappy apartment with multiple roommates to keep his housing expenses low.  


This is not the only example that he shared with me.  He lived very simply during this time. By making lifestyle sacrifices he found money that was able to go toward his goal.


Track Progress to the Penny


He seemed a little embarrassed to tell me that he tracked this goal so much in depth, that at any given day in this process, he could tell you how much debt he had to pay off… to the penny.  He had a spreadsheet that he created that used to track his goal and he looked at it frequently.


I thought this was great!  This may be a bit overboard, but really when you think of it, this probably had a huge psychological effect on him the helped him to be successful.  His debt goal was constantly on his mind because he created ways to keep it front and center.


Tracking progress on our goals often keeps them front and center in our lives.  It reminds us to make good choices. To say no to things we don’t need. To continue the good financial habits in our lives that will make it possible to achieve the things in our lives that we strive for.  


Focus on One Goal at a Time


This story exhibits the power of concentration.  Chris didn’t spread his extra income around to 3 or 4 different goals.  Instead, he focused on one task only. This goal became his obsession. Because of this, he found that his remaining debt started to go down fast.  He saw his hard work and sacrifice making a huge difference which reinforced these actions. It gave him the incentive to truck on.


What is the one thing that would make the biggest difference in your life if you made it better?  What would happen if you focused all your energy on that goal?


Think of the Possibilities


Chris achieved this amazing feat by the time he was 21 years old!  (Oh, by the way, because he had college credit from high school and he focused on success in school, he was able to graduate in 2 ½ years.  Chris is a man of action!)


Imagine the opportunity for his financial future.  Achieving this goal of being debt free at such a young age will allow him to live a life free from debt burden and to set himself up to be very financially successful.


Imagine if he were to just take his initial student loan minimum payment of around $600/month and invest this going forward for the next 38 years?  At an 8% annual return, he would accumulate over $1.7 million by the time he is age 60! I think he will be able to have an okay retirement.


If you want to read the original story written by Chris himself, here it is.


Lessons Learned


Ever since meeting with Chris I have shared his story with my high school students.  I want them to see that becoming debt free can be done. Chris was a student just like them.   If he can do it, so can they… so can you!


My hope is that sharing this story will have the same impact on you.  If your finances aren’t where you like them to be, you can do something about it.  Chris’ journey gives us a roadmap:


  1. Decide that you will be different.

  2. Find ways to make some extra money.

  3. Spend less by living simply and making some sacrifices.

  4. Track your spending and goals.

  5. Prioritize your goals and concentrate on the most important one.


If you do these 5 things you will move to better outcomes with your finances.  


If you want help planning this out, let us know.

Why Don't Students Like School?

Have you ever had a spirited discussion about the art of teaching?  


A few of weeks ago, this happened to me with a few colleagues after school.  In fact, this happens quite often in our department. Like other schools, I’m sure, our district is making some changes in the way we are expected to go about teaching our students.  This presents the opportunity for lots of good discussions around how things are going, whether these changes are good for students, and what is the best ways to achieve effective classrooms.  


I enjoy these discussions, a lot.


During this spirited talk, our psychology teacher handed me a book and told me that I should read it.  The next day, I began reading it and couldn’t put it down. In fact, I finished it in two days, which is out of the ordinary for me.  


This book is called Why Don’t Students Like School? and is written by a cognitive scientist, Daniel T. Willingham.  


To be honest, it had been a long time since I read a book about the craft of teaching.  Since becoming a financial planner, most of my reading has been about the craft of financial planning.  I’m embarrassed to say that I haven’t done a ton of reading on how to become a better teacher besides the professional development that our district has provided - at least, nothing on my own.  


The concepts in the book have been on my mind the past couple of weeks as I developed lesson plans.  It has also affected how I think about parenting my children. It even made me reflect on how I put together a practice plan for my daughter’s 4th grade basketball team that I coach!


When has been the last time you have purposefully read something to improve your craft?  


If you are looking for something to reflect on your teaching, I highly recommend this book.  HERE and HERE are two reviews about the book and HERE is the author’s website, which is full of other articles and research, if you are interested.


Are there other areas in your life that you should be improving?  Should you be reading books on your finances? Your health? Your marriage?  Parenting?

Lastly, are there other books out there that I, or others, would benefit reading?  Please email me book suggestions and/or share how a particular book changed your teaching.  I would love to compile a list for another blog post.

How the New Tax Law Affects Teachers

The Tax Cuts and Jobs Act was signed into law by President Trump on December 22, 2017.  There have been many opinions shared throughout social media, traditional media, and conversations among friends and family.  Sometimes this has remained civil; other times, not so much.

I am going to attempt to keep politics out of this and just highlight how the new tax law may affect typical teachers and their tax return.  In doing this, it is important to keep in mind that the tax code is complicated and every family is different depending on size, structure, employment, circumstances, and financial actions.  Each family is unique.  I am married to a small business owner and have four kids.  The new tax changes may impact my us in many different ways compared to you and your family based on your own situation.

I will focus on the things that I think are most applicable to most of us based on our profession.

The $250 deduction for classroom supplies will continue.

There was a discussion of repealing this deduction.  Teachers will continue to be able to take an above the line deduction up to $250 on materials they pay for out of pocket used in the classroom.  It is important to note that you should keep good records and receipts of these expenses and that you cannot deduct items that you get reimbursed from your employer.

Most of us will be in a lower marginal tax bracket.

My favorite visual of the tax bracket changes come from Michael Kitces at Nerd's Eye View.  He shows a comparison of the old and new brackets.  The green is a decrease in marginal tax rate based on taxable income and the red shows an increase.

kitces tax law.png

As you can see, almost all married couples will see a decrease in their marginal tax bracket.  Single teachers will most likely see a decrease also, considering what teachers make in salary, unless there is significant income from other sources.  

I want to pause and make a few points regarding the income tax brackets.  Even though you are probably familiar with them, it is common for people to not completely understand how they work.  

First, these are marginal tax brackets, which means you are only taxed at the new higher rate on dollars ABOVE the tax line NOT on all dollars earned.  For example, the first line on the new tax bracket for a married couple is $19,050 of taxable income.  If you as a couple have taxable income of $19,051, only $1 would be taxed at the higher 12%.  The rest ($19,050) would be taxed at 10%.  Many mistakenly think that all $19,051 would be taxed at the higher 12% rate.

Second, the brackets are based on taxable income, not all income.  Below is a very stripped down version of how individual taxes work. (based on IRS form 1040):


Many make the mistake of looking at the tax brackets using their total gross income for the family.  After deductions, the actual income that is taxed can decrease quite a bit.

This brings me to a final point.  Because there are so many other circumstances that influence the total tax you are required to pay (like tax credits) and your income can be taxed at many different tax rates, just because you see your marginal tax rate increase or decrease with the new law doesn’t mean the taxes your family pays will necessarily do the same.

The standard deduction was increased.

The standard deduction will go from $6,350 (2017) to $12,000 for single filers and from $12,700 (2017) to $24,000 for married filing jointly.  

This in itself will help many tax filers, lowering the income that is ultimately taxed.  If you already take the standard deduction like 70% already do, it is likely that you will ultimately receive a tax cut in 2018.

Many of you who in the past have been able to take the itemized deduction won’t now because the standard deduction will be higher than the total of your eligible itemized deductions.  This is almost certain to be the situation for my family.  

For example, let’s say a married couple in the past had $18,000 in itemized deductions.  They would have taken that because it is $5,300 higher than the (2017) standard deduction for married couples.  Assuming not much has changed for the family in 2018 the $24,000 standard deduction is higher than what they can itemize, so they will automatically take that.  Their itemized deductions become irrelevant.

There were some changes to what deductions can be itemized.

Because many of the drastic changes that were being discussed during the legislative process did not make it to the final bill and since the increased amount of tax filers who will no longer itemize deductions, I am not going to address these changes here.  

Instead, I will just pass on a couple of resources HERE and HERE for those that will still be able to itemize their deductions.   

Personal exemptions are dropped.

Remember, your taxable income comes from subtracting the standard deduction AND personal exemptions from your Adjusted Gross Income (see above).  Generally, you can take a personal exemption of $4,050 (2017) for each member of your household.  For example, in my family, there are six of us.  Under the old rules, we could take $24,300 in personal exemptions (6 X $4,050) but now there will be no such thing as personal exemptions.  

For single people and couples without kids, this is made up by increasing the standard deduction.  For most families with children, this is overcome by an increase in the child tax credit (see below).

The child tax credit doubles.

The 2017 child tax credit is $1,000 per child (under age 17).  The new law will double it to $2,000 per child.  It also added a $500 tax credit for dependents who don’t qualify for the child tax credit, like children age 17 and older and others who may be living in the home and being cared for.

It is important to understand that tax credits are better than tax deductions.  Many get confused between the two.  Tax deductions only lower your income that is taxed.  Tax credits lower your tax directly.  

For example, a married couple with two young children, after figuring out their taxable income, looks at the IRS tax tables and finds that their tax to be paid is $9,000.  Because they can take a child tax credit of $4,000 ($2,000 for each kid) their total tax for the year is now $5,000.  The tax credit lowered their tax to be paid, dollar-for-dollar.  

The new rules also increase the number of families who can take this tax credit.  Before, families would be phased out of being eligible for this beginning at $75,000 for individuals and $110,000 for married couples.  Now phase outs begin at $200,000 (individuals) and $400,000 (married).

529 savings plans can now be used for K-12 education expenses.

For years, 529 savings plans were considered the best way to save for future college expenses. (And still are!)  Now, these accounts can be used for private, public, and religious K-12 education expenses as well.  

One area of caution.  This is a change in federal rules.  But, 529 plans are administered by states so it will depend on the specific 529 plan whether this is ultimately something for which you may take advantage.  For an example, see HERE.  This is something to check with your tax advisor and watch for updates if this impacts you.

Many of these changes are temporary.

One of the major criticisms of this tax plan has been that many of these changes sunset back to original levels after the year 2025, in order to keep deficit projections at a level to only need 50 votes in the Senate for passage (instead of 60).  These include the individual income tax brackets and child tax credit.  This (along with a few other things) has led many to conclude that what can begin as a tax cut for families may end up as a tax increase in future years (when compared to the current system).

It will be interesting to see if these changes will be made permanent in the future and/or if there will be yearly patches in order to keep families from seeing these tax increases.


We could go on and on about different aspects of the new tax plan.  There are clearly major parts of the plan that I ignored.  I tried to highlight the changes that have the most potential to directly affect the taxes of teachers’ families.    Whether you feel that this tax plan is good or bad for the United States, it is important to understand how it may affect your family so you can plan ahead and make adjustments.

If you think you will get a tax increase you may want to begin saving a little each month in order to have the money available to pay a larger tax bill at the end of 2018.  

If you think you will get a tax cut make sure you take advantage of it.  Think about how you can improve your financial situation.  In February, you may begin to see more take-home pay each month.  Maybe you want to increase your automatic contributions to your Roth IRA by that increased amount.  Or if you don’t have a Roth IRA, start one.  If you have consumer debt, pay a little extra each month.  The important thing is to plan ahead and take action to make your finances better.

*Information found on any links in this post are not the property of A.O. Wealth Advisory.

*A.O. Wealth Advisory nor its representatives offer tax or legal advice.  Please contact your legal or tax advisor regarding your situation.