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		Managing Your Finances as a Live-In Professional By Seth Fishman, PhD. Educational Consultant Congratulations; you have a job! How many jobs do you find that pay for your apartment and meals? Besides the president of your university (or the US), not many! Now you can finally make a few purchases you’ve been waiting on or start eliminating that debt accumulation. As a live-in professional, you more than likely have a rent free apartment and no utility bills to speak off – a substantial savings! However, good financial management requires you to honestly evaluate your financial situation and make some decisions. This article will provide a general overview of those considerations. “Show Me the Money!” Do you really know what is going on with your paycheck? It is sad to say, but many individuals really do not have a good handle on this question. I imagine that you know how much your annual salary is and how frequently you get paid. However, there are other important issues that you should understand and if you don’t, I suggest a trip to your Human Resources department to research the following: Can you split your direct deposit into multiple bank accounts? Are you paid monthly, bi-monthly, or weekly? What taxes are taken out of your pay, and at what percentages? (Some small communities have occupation taxes, some large urban areas have city wage taxes and most states have an income tax) Does your university make you wait a period of time to become involved in a retirement plan? What percentage does the university contribute to your retirement plan? Can you contribute extra to this plan, and if so, how much can you additionally contribute? What is the amount of retirement contributions deducted automatically from your salary? How much does your health insurance cost and what are your deductions each pay period? A Little About Health Plans Health plans will vary and you may have options (e.g HMOs, PPOs, etc). Make sure that you understand your individual health plan in regards to the benefits you receive, and how much it costs per paycheck. You need to understand about benefits for your spouse, partner, and children. How much is the deduction (if any) on treatments? What places will accept your insurance? What is the prescription plan? Dental and vision options? Pre-Tax Purchasing You may be able to pay for some things through your university “pre-tax”. If you are able to purchase something pre-tax, you will not be taxed on the amount you spend. As an example consider the following: your salary is $25,200, and you find out that you can purchase your $200 parking decal pre-taxed as a payroll deduction your end of year tax will be only based on $25,000 Many universities and colleges will allow you to set up a pre-tax savings account for medical expenses such as eye-wear, medicine, co-payments, etc. You may also have tax free options on day care and public transportation usage. These are important issues to research and find out about. Retirement – Thinking Ahead As employees new to the work world, it’s hard to start thinking about retirement now but you should! The money you accumulate early in a retirement account has the longest amount of time to increase in value. Literature is available through your university, so review the literature on the various plans that are offered in detail. Retirement plans can be confusing, so it may be helpful to spend time reviewing your options with older staff who have been contributing to a retirement account for a number of years. Know the difference between a defined benefits program and a defined contribution program. Also it does not hurt to see what type of retirement account your colleagues have set up, particularly your director of housing. He/she will have words of advice; seek it out. “Vesting” is another important concept with retirement plans that you need to understand. Your institution may match on a percentage basis your contributions to your retirement account. Vesting involves the amount of time that you need to work at an institution in order to receive the total of that matching percentage contribution. As an example, your university policy may state that you need to work at the institution for 5 years to be 100% vested. If you cease your employment with the university prior to that time, then you may lose the university matching percentage. Some universities vest employees immediately, and others do it in a specified time frame. Make sure you understand your institution’s vesting policy, and consider it when you are considering leaving the institution for another position. Extra Contributions to Your Retirement Account This may come as a surprise, but you may not want to work forever. You can have extra money deducted for retirement savings, and you should check with your Human Resources Department on what this maximum amount is. If your financial situation permits, I recommend taking out the maximum salary contribution deduction for your retirement account. Good sound financial advice involves placing as much money as you can into retirement accounts early in your career, so your investments have the maximum amount of time to increase in value. If this money just comes out of your check automatically, you will not miss it anyway. Additional Savings for Retirement The federal government allows you to place additional monies away in accounts for retirement savings, in the form of traditional or Roth IRAs (Individual Retirement Accounts). Both of these options can be done in addition to your existing retirement plan, however they will not be tax deductible if you already have a retirement plan. If you do not have an existing retirement plan, these investments will lower your taxable income. The difference between Roth and traditional IRAs is as follows. With traditional IRAs, when you begin to draw from these accounts when you retire, that income will be taxable based on your income level. With a Roth IRA, you are exempt from taxation when you remove payments from the account. As of 2011, you can place an additional $5000 per calendar year in these tax-deferred accounts. This contribution amount is determined by the IRS and could change yearly. Investing in these accounts and others such as Supplementary Retirement Accounts (SRA's) should be considered as soon as you are financially comfortable. Consultant a financial planner; there should be a few in your community. TIAA-CREF offers free financial planning if you have an account with them. The Internet will also provide you good information as well. Should I Invest/Save More? Some of the best advice I have heard is from a colleague of mine, Terry Tumbarello, who told me that while I lived in, I should put aside the amount that I would spend in rent per month and save/invest this money. This is a significant savings/investment, however the benefits will certainly pay off in the future. You will most likely not live-in forever and this can be a prime opportunity to save for your future housing needs. Some institutions have programs that allow you to invest or save a set amount per month, and they deduct that amount right from your bank account so you will not have to worry about sending in a check, etc. Check and see whether your college/university offers this service. But what about my loans, credit cards, etc? You should try and pay off your credit cards ASAP. If you have more than one, consolidate them into one (and pursue a low interest rate that you can find if you shop around). Your student loans probably have a fixed interest rate and you should know how much you pay per month on these. Typically, credit cards have a higher interest rate than student loans, so you should pay off your credit cards first. When paying off a large debt, or taking on a new loan, try to pay a set amount of money extra each month, beyond the minimum or required payment. Extra monies paid in this way are applied directly to the principle of the loan. This strategy can save you interest money on the loan, and reduce the amount of time that you pay on the loan. Now What? Setting A Monthly Budget By now you should have an idea of how much income you have after you take care of your bills, the deductions from your paychecks, etc. You now need to come up with a monthly budget to help keep you fiscally focused. When setting your budget, calculate out your money in and your money out. Allocate moneys to cover your expenses, and “pay yourself first”. “Paying yourself first” involves targeting a specific amount of money that you will save or invest during the month. Make “paying yourself first” a priority. After you set your monthly budget don’t just forget about it. Reconcile it half way through the month to make needed adjustments and keep yourself on track There are many online websites that have budget preparation sheets that you can print out and fill in the blanks. It is very easy to set up a spread sheet on Excel or Google Docs to set and track your monthly budget. You can also find free budget templates on-line. Other programs such as Quicken and Quick Books are useful if you have managing multiple bank accounts and extensive purchase tracking. Some things to consider when doing your budget: a) major purchases you wish to make, i.e.- car, computer, vacation or travel, etc., b) a budget line for professional development, and c) a small budget line item for treating yourself each month. Also, as a ‘general rule of thumb,’ it is recommended that you keep 3 months of expenses as cash in the bank. This way, if anything comes up unexpectedly, you will have some money in your bank account to pay for these unanticipated expenses. Closing Thoughts There is no special formula for financial success, however if you learn to keep track of how much your paychecks are, keeping to your budget, and eliminating all your debts, you will find that living in is one of the best financial opportunities out there! Just be sure to safeguard your on-line financial passwords. Recommended On-Line Resources: Bank Rate.com - very useful site for comparing Certificate of Deposit and other interest rates. You can also easily get the tax rates for each state too. I've used it for a decade. TIAA-CREF - even if you do not have a retirement account with them, they have some very useful articles posted. TurboTax - Check to see if you'll qualify for a FREE federal tax return. Also an affordable option if you have state taxes, particularly if in more than one state. If you pay for any of the plans, they will automatically input your info into your next year's tax return, saving you quite a bit of time. IRS - More specific info is available here as well as options for free federal tax returns and other forms you may need. AARP - It is never too early to think about your retirement and social security as well as your parents and other older family members. Last updated: January 25, 2011. About the Author: Seth Matthew Fishman earned his PhD at The Ohio State University in Higher Education Administration, researching retirement in higher education. He has held student affairs positions at Florida Atlantic University, University of Kansas and Ferris State University, where his first job was as the Masselink Hall resident director. He can be reached at sethfishman@gmail.com.