Personal Finance

How to Save for a Down Payment on a Teacher’s Salary

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
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My wife and I live entirely on her teacher’s salary. We invest 100 percent of my income in our quest to build wealth rapidly and reach financial independence.

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I won’t try to tell you it’s always easy. What I will tell you is that even on a modest income, you can achieve a high savings rate if you’re willing to do what “normal” and “average” people are not. For example, here’s a formula for saving $50,000 in two years on the median U.S. income.

If you’re in education and wondering how you’ll ever save enough money for a down payment, follow this blueprint for earning more, spending less, and accelerating your savings rate.

Redraw Your Budget from Scratch

The problem with most people’s budgets is that they start by looking at their existing expenses and income. Then, they try to tell themselves that they’ll just “be better about discretionary spending” to put a little more money toward savings at the end of the month.

That ain’t gonna cut it.

Instead, throw out your existing budget entirely. None of your expenses are sacred—none. All are subject to the chopping block.

Start with your target savings rate. Decide on a percentage of your after-tax income to save every month, whether it’s as low as 10 percent or as high as 70 percent. But the higher, the better.

Once you’ve set that savings rate target, you now need to work backward from there to figure out how to reach it. That will definitely mean cutting expenses, and it might also means earning extra money.

Begin by Scrutinizing “The Big Three” Expenses

Nearly two-thirds of the average American’s spending goes to just three expenses: housing, transportation, and food. (1) That means that these three expenses offer the greatest opportunity for savings.

Here are a few ideas to cut each.

male showing empty pockets implying moneyless

Housing

The average person thinks their housing payment is written in stone, that there’s nothing they can do to lower it short of moving into a collapsing shack.

That couldn’t be further from the truth.

Yes, you could move into a less expensive home. Or you could move into a multifamily and rent out the other unit(s) to cover your mortgage.

My wife and I moved overseas, where her employers—international schools—have provided us with free housing. We get to visit around 10 countries a year, plus spend two or three months home in the U.S.

But you don’t have to move to house hack. Look no further than the various ways my business partner Deni Supplee has house hacked suburban homes over the years. Most recently, she bought a mixed-use building to move into with her husband, daughter, and foreign exchange student. They use the commercially-zoned unit for a massive tax write-off each year, as they run their businesses from it.

However you do it, find a way to trim or eliminate your housing payment. You’ll see a huge spike in your savings rate from that one move alone.

Related: The ROI on the First Year of My House Hack: 82%

Transportation

Few people realize just how expensive it is to own and operate a car. They just say, “I need a car to get around,” and leave it at that.

Between the car itself, gas, maintenance, insurance, parking, and other expenses, the average car costs nearly $9,300 a year to own. (2) And most households have one car for each adult.

Look at your life holistically and ask yourself: how could I get rid of my car? Could my spouse and I share a car? What would it take to become a zero-car household?

For four years living in Abu Dhabi, my wife Katie and I shared one car. When we looked at where we wanted to move next, one of our criteria was to find a school and city where we could live without a car at all.

We ended up choosing Brasilia, the capital of Brazil. Her school provides us with an apartment that’s within a 10-minute walk of the school in an extremely walkable neighborhood. I found a co-working space to use as an office, within an eight-minute bike ride. We can walk to grocery stores, restaurants, bars, coffee shops, movie theaters, and every other amenity we could want.

We Uber when we need to get somewhere by car, and rent a car for the occasional long weekend when we want to get out of town.

The point isn’t that you should move to Brazil. The point is that you need to take a holistic look at your life when budgeting, and then design your life from top to bottom around your target savings rate.

Food

It’s simple—but not easy—to save money on food.

Pack your lunch every day. Stop eating out at restaurants except for special occasions. Cook healthy meals in batches and save leftovers. Make your own coffee rather than blowing $5/day ($150/month) on lattes at Starbucks. Meet your friends for drinks at people’s houses rather than meeting at bars.

None of that is rocket science. People just don’t do it, because it’s more convenient and fun to have someone else make your coffee or to go out to lunch with friends every day.

Building wealth and reaching a high savings rate isn’t easy. But it is simple.

Group of four male friends drinking beer and eating pizza at home.

The Revenue Side

After scrutinizing your expenses, starting with your top three, look to the revenue column in your budget.

Your Salary

Pull out your last pay stub. What was your after-tax income?

In any given month, you can count on exactly four weeks of after-tax income. Not 4.33 weeks of income, not your gross income, but four weeks of after-tax income.

That’s what you can count on from your salary each month, so that’s what your budget needs to be based on.

Every once in a while, you’ll get a bonus paycheck, since you’re probably paid weekly or biweekly rather than monthly. Put that bonus paycheck toward savings. Period.

Extra Income

Worried that four weeks’ after-tax income isn’t enough to meet your savings rate target?

No problem. Pick up some extra income elsewhere.

My mother tutors kids in addition to her teacher’s salary. I do freelance writing in addition to my business at SparkRental, teaching people how to reach financial independence with real estate. My stepdad teaches a college course on sports marketing each semester as an adjunct professor.

You have unique skills, and you can always develop more. If you’re looking for ideas, there are tons articles online about various ways to make money on the side.

Teachers also have the benefit of summers off, opening a wide window for extra revenue!

Related: 16 Side Hustles to Help Save Money for Your First Deal

Automate Your Savings

You’ve cut your expenses. You’re earning some extra money, and you have a budget with a high target savings rate.

But there’s an old truth in personal finance that budgeting is not a math problem, it’s a behavior problem.

Discipline doesn’t last. It will fail you sooner or later, when you see a jacket you want or your friends invite you out to dinner at the end of a long, frustrating week.

So? Don’t rely on discipline.

Instead, automate the “good behavior” of savings so it doesn’t require any work on your part. Make your savings the first expense taken out of your paycheck, every pay cycle, before you have a chance to spend it.

You could do that through having it automatically deducted from your paycheck into a 401(k) or split off and direct deposited into a savings account or Roth IRA. Or you could set up automated recurring transfers from your checking account to your savings account on the same day you get paid every week or every two weeks.

If you have a problem with spending money not in your checking account by charging it to your credit card, hide your card away in a drawer somewhere. Only live on what you have in your checking account.

Final Thoughts

If building wealth were easy, we’d be a nation of millionaires. But it’s more fun to spend most of what you earn and feel wealthy in the moment—which is why the average person does exactly that.

Those willing to defer gratification and save while their friends spend can reach financial independence by 40 if they start in their 20s or early 30s. Adults in their 40s, 50s, and 60s can follow the same formula to retire early (or on time, if they’re behind).

It takes only five to 15 years to reach financial freedom at a 50, 60, or 70 percent savings rate. The question is simply whether you’re willing to make the lifestyle changes to do it.

Sources

  1. https://www.bls.gov/news.release/cesan.htm
  2. https://newsroom.aaa.com/auto/your-driving-costs/

What are your savings goals? What are you doing to reach them as a teacher?

Let’s talk in the comment section below.

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their ...
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    Christina Castro
    Replied 5 months ago
    That’s super awesome! I work in education but I am a single mom which means single income. I bought my first house on my own last year using the money I got in my divorce from selling a rental property. I’m on a very tight budget (3 kids...2 grown but still living with me) but I plan to do my best to save up for an investment property. In addition to my day job as a counselor I work as a clinical therapist a few evenings a week...hoping I can eventually save 100% of the money from that job to help with the down payment. Would love to see more articles about how single moms are making it happen :)
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Definitely not an easy path when you're a single parent! But I love that you're aiming high and building wealth Christina, keep on doing what you're doing!
    Chad Matthews Rental Property Investor from Philomath, OR
    Replied 5 months ago
    I have been a teacher for almost 25 years. For the last 20 years, I have been the sole wage earner for my family including my wife and 4 kids. In that time we have built two of our own homes, sold several homes, and purchased 16 additional doors. I am no smarter, no stronger, and certainly not any more handsome than the next person - this is simple (but it isn't easy). Just remember, if you want what others have, do what others do. Who are your surrounded by? Surround yourself with others who share your same passions and you will find a way to fulfill those dreams (be it physical health, spiritual health, or financial health). It can be done. Others are doing it. You can do it too!
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    So true Chad! And congratulations on what you've built, sounds like you've invested a lot of time and money into building the wealth you've achieved!