10 month vs 12 month pay checks
You finally get the phone call offering you a position as a full time teacher! Now you need to come in to the central office building to do “onboarding” (or official hiring). You will have some major decisions to make on your onboarding day, so be ready. The first one is whether to have your salary split over ten months (in some cases nine) or twelve months. Here are some things to consider:
What about taxes?
Particularly this time of year, your mind might do directly to taxes. How will the two different options impact your taxes? The good (or bad) news is that there are no major tax implications behind either option. Your taxes will be the same either way, so no help decision making there.
What about investing?
Some argue that by taking your paycheck over 12 months instead of 10 you are giving your school district an interest free loan because they get to keep some of the money they would have paid you during the school year until the summer time.
If you choose 10 month pay checks and you are going to invest the “extra” money that you receive each month, then good for you to have the wearwithal to set aside money each month to invest, but I rarely see this happen (actually, I’ve never known someone to do this). This also necessitates that you don’t invest so much that you are left with nothing to live on in the summer when you don’t have a pay check coming in (or that you are comfortable pulling out short term investments in the summer).
If you think you are going to get ahead by saving that “extra” money consider your interest rate. According to the FDIC, the national average interest rate on savings accounts currently stands at 0.09%. Maybe you’ll make a couple pennies more by the summer time if you take your money upfront, but probably not enough to buy a tub of ice cream.
Having money in the summer?
If you fear you might spend your money if you have it earlier and end up with an anemic bank account come July, the 12 month option is a no brainer.
Not to mention, if you get used to living on your 12 month salary and then you work summer school or some other job in the summer you can use that extra money to save and invest.
What I do
All fourteen years of my teaching career I have chosen the 12 month option and I’ve never regretted it. I am good saver, so I’d be fine going with the 10 month and saving for the summer (and I’m well beyond the paycheck to paycheck era of my life), but to tell the truth, it just makes me smile to see a paycheck go into my account while I’m laying on the beach in the summer.
Ultimately it’s a personal choice.
You do what it best for you, but if you’re unsure, I’d recommend going with the 12 month option.