As educators we really need some education about how to become secure financially. So, this 2-part guide to investing is an introduction to some of the vocabulary you’ll need to know and the steps you’ll need to take to start investing as an ELT teacher.
Money matters in general and, especially, investing as an ELT teacher are barely mentioned in ELT. I spent years teaching English, in several countries and for tons of schools, from the big names to small local business. No-one ever even said the word “pension”. Not once, not at work, not during professional training, not at conferences. As a result I reached my [cough] midulthood with no financial awareness and a small savings stash earning virtually nothing.
What is an Emergency fund?
No guide to investing can miss out the lifejacket that is an Emergency fund. Money that will keep your head above water if you have a sudden expense or are unable to earn money for a period of time. Perhaps because of illness or loss of work or any other reason you might lose your income for a while.
An Emergency fund is savings, not investments. But it’s savings you don’t dip into for purchases or holidays or extra. Ideally you never touch your Emergency fund because no emergencies arise.
How much to set aside in an Emergency fund depends on your circumstances but it’s typically 3–6 months of essential outgoings. You may be secure with more or less than that. (I have 5 months at the moment.)
How does compound interest work?
Compound interest is like a magic wand where money is concerned. And like any powerful spell it can be used for good or evil so it’s key to this guide to investing.
Compound interest is interest that grows on interest. So if you had 100€ and the interest rate is 10% a year, at the end of the year, you’ll have 110€.
10% of 100 = 10
100 + 10 = 110
Next year, you’d have not 10€ extra but 11€ on top of the 10€ you earned last time because the new 10 itself starts earning interest. Now you’ve got 121€ in total and 21€ of that is interest. Next year, it will be even more and that multiplying effect is called compound interest. (Simple interest would be 10€ extra every year because only the original 100 is earning interest.)
10% of 110 = 11
110 + 11 = 121
So when you wave the magic wand of compound interest on debts like credit cards, loans and mortgages, you see how you’re very quickly paying an ever-increasing amount of interest? That’s evil compound interest and you want to avoid or eliminate it as fast as possible.
When compounding is working for you instead of against you, you’re earning money for nothing and compound interest basically becomes free money you don’t have to do any work for. You want to maximise this kind of compound interest every chance you get.
It will change your life.
What is a pension?
The word pension comes from the Latin for payment, pensio. It’s the payment you get when you retire which we probably all know. But maybe we don’t think much beyond that and just think it’s one sum that automatically gets paid out when we retire. Where that payment comes from is the question and the answer to that affects who gets pensions, when, and how much they get.
You might get some of that pension payment from the government. Some of it may come from past employers. You might get some of it from money you yourself have built up. If none of those entities are set up to pay you out a pension or what they pay you isn’t enough to live on, you’ll have to work.
Unfortunately, in ELT, we don’t get as many opportunities to build any of these pensions as people in other industries. Again, that’s why it must go in this guide to investing for ELT people.
ELT teachers (and freelance ELT writers and editors) are highly unlikely to get a pension from employers. Unless you work for a really good private company, or a state school or university. Or you live in a country where your employer is obligated to pay into a workplace pension.
You might move around a lot and you might not stay long enough to be eligible for a state pension. Or you’re teaching and earning cash-in-hand or under the table and also aren’t eligible.
And, since no-one really tells us about these things, you might not have started a pension by yourself. Having savings isn’t the same as having a pension because it’s unlikely that you can save enough to pay yourself a retirement income aka pension for the rest of your non-working life.
What you need is some way of earning compound interest on your savings to turn them into enough to retire on. That something is a private pension. Ideally you’d be owed state pensions as well and pensions from employment on top. When you see senior citizens enjoying their retirement on cruises and treating their grandkids, you’re probably seeing the ones who had all three.
US vs UK investing English
NB In American English a pension only refers to a pension from an employer (a workplace pension to Brits). And those are few and far between nowadays, for example military and federal pensions. What we would call a private pension is a retirement account for Americans. And the state or public pension is what they call Social Security.
If you’re a resident of America (American or non-American) and want to learn more about retirement accounts and investing, I recommend Delyanne Barros’ course for beginners. This link gets you over 50% off the course price!
Delyanne’s featured in Forbes, CNN, CNBC and Time, and her course, Slay the Stock Market, has all the specifics on which American brokers to use and how to prioritise all those America-only tax advantages and the different investing and retirement accounts (401K, IRAs, HSA etc).
What does “investing” mean?
Finally, this guide to investing gets to … investing. The word probably doesn’t mean what you think it means as the term is often used generally to mean anything you hope to make money from. That might mean buying a house and doing it up or hoping property prices go up. Or buying shares in Amazon etc and selling them at some point. Ditto buying a valuable painting. Or giving money to a new tech startup in return for a promise of a share in their profits when they sell it or make their millions. Or whatever it is people do when they buy and sell cryptocurrencies.
To me, all these things are what gives investing a bad name and make it seem high risk. Some of these things would be better called trading, or speculating, or downright gambling. They can make you a lot of money, or they can lose you a fortune. Some are slower to do either; others can turn you into an overnight millionaire or wipe out your bank balance to zero.
Investing just means “putting your money somewhere it can grow over the long term”. And there are much lower risk, no effort or stress ways of investing money than any of the above. Yes, passive investing – which is the kind I teach and is the kind that makes things like pensions grow because pensions are just a type of investment – does involve the stock market. But you don’t need to choose which companies to buy. Instead, you earn money from the stock market via something called index funds.
Investing also usually involves other things like bonds and real estate and, like with the stock market, you invest in them in a broad sense too and don’t need to pick and choose which bonds at which price and when to sell them etc. unless you want to actually be a trader, and then that’s a full time job and you should learn how to do it properly.
Is investing risky?
This kind of investing is passive, low-risk and long-term. It’s get-rich-over-a-lifetime, not get-rich-overnight. It’s easy once you understand it, and involves very little of your time and attention. If you can open an online bank account, you have all the technical skills to open investing accounts. I learned by myself but it did take me a few months and some errors along the way. If you want to learn everything you need to know, you could be putting your money to work and turning your savings into financial security in 5 weeks with my support. I can help you understand the main vehicles for investing and you’ll understand it enough to use a broker if you want to, or other tools that are a bit less hand-on if you want.
None of it is very hands on though as the emphasis here is on passive investing. I spend maybe a few minutes a month on mine even though I have multiple investing accounts. My main activity is logging changes in my balances every couple of months or so. In three years, I’m up by a few thousand euros across my accounts – pensions and other investing accounts. This is perfectly possible for anyone in ELT, no matter how small you start.
Ready for Part 2 of the teacher’s guide to investing? Click here.