2nd tale - How IS teachers can earn 300K a year.
Posted: Tue May 03, 2016 9:33 pm
Another meandering tale, some of which is based on real events, hopefully of use to some.
Several years ago I chose to try and work in tier 1 and 2 IS rather than join my former classmates working for an oil or pharma company. Part of my decision was that I thought I had a realistic model where teaching in IS worked out more lucrative overall than a career in engineering.
How an IS teacher can ‘earn’ 300K (US) a year:
So this is a 12 year plan based on gaining better conditions (with experience) in international schools, purchasing three buy to let (rental) properties and including free tuition and increase in asset values as ‘earnings’ to reach the headline figure. I am assuming any financial crisis during the next 12 years would eventually be countered by some form of quantitative easing (i.e. printing money) as happened after 2007/2008 which would mean house prices (or stock markets) are re-inflated.
Years 1-5 – developing saving habits and purchasing your first buy to let (rental) investment
In your first year as an IS teacher you need to (i) begin to develop good saving habits and (ii) make sure you have a credit card back home (in the UK/USA etc) which you use and pay off regularly. Many (though not all) popular IS destinations offer far better saving potential than back home. One key saving is not running a car, I strongly recommend you don’t unless you really need to. Also try eating in with friends or eating at local restaurants for most meals outside of school. If you want western food have McDonalds every now and then and keep fancy western restaurants and cocktails as a treat. Apart from the annual trip home to see family you should travel regionally (i.e. China to the Phillipines) and book your flights and hotel well in advance. Torrent sites mean you can download most movies, TV shows and ebooks for free (the FBI are not going to chase you to China), just buy the occasional book or movie ticket.
Your aim is to save US $20 000 a year, though this plan should still work as long as you consistently save US $15 000. Once you have a savings habit you should find it doesn’t hinder you quality of life, you may even feel more content at the end of each month with more money in the bank.
By year 5 you should have saved US $100 000 (or at least US $80 000), this is the deposit for your first buy to let (rental) investment. As long as you have been regularly using and paying off your credit card from back home (and maintained a general bank account back home as well) then your Experian.com credit score should comfortably be good enough to get financing. There are multiple specialist agencies and lenders that offer expat mortgages and you CAN get financing. Your buy to let (rental) investment should be one that will rent easily (near a working population of 20 000 or more, close to local amenities, good transport connections, 2 or 3 bedrooms) and with a deposit of US $100 000 you should be able to buy a property worth US $400 000. It’s a fair amount of paperwork but very much worth your time. If you like the 80/20 model then your time spent managing savings and buying a property definitely falls in the 20% section.
Note: While property prices can be volatile rental rates are fairly consistent and usually creep up around 4-5% a year. So as long as you are using the rent to cover the mortgage with some positive cash flow then you don’t need to worry too much about short term fluctuations in the property value.
Years 6-9: Better conditions, second income stream and second property purchase.
By the start of your sixth year you should be earning a bit more due to extra experience, better paying school and/or perhaps a promotion of some sort. Also if you have five years IS experience, are in your second (or third) year at your current IS and you are well on top of your classes you may be able to develop a second income stream. One straightforward and above board approach is to become an IB Examiner, which will top up your savings a bit. Another potentially more lucrative area is tutoring. I began tutoring in my fifth year in international education and earned/saved an extra US $15 000 a year for three years. I gave it up in my eighth year as it means working more evenings and weekends and I had got what was needed from it.
Your aim is to save another US $80 000 to US $100 000 (in today’s money) and purchase another buy to let property valued at US $350 000 to US $400 000. Again regular saving needn’t feel like a huge sacrifice because many IS offer very good saving potential through some fairly simple lifestyle choices. You should be an accomplished saver by now and your self discipline in this area may help in other areas. Having already purchased one investment property then you should find getting financing and buying the second one somewhat easier. You should be able to use the same lender and the paperwork requirement will be the same or lower then the first purchase.
Years 10-12: top level conditions and third (and final) buy to let/rental property.
Going into your tenth year at an IS if you have done your job well and not been unluckly with line managers you should find your pay and conditions again somewhat improved with a good benefits package that covers a spouse and 2 dependents.
The final push is to keep saving US $20 000 (in today’s money) and get ready to buy your third investment property. For this one you only need to save half a deposit because the other half should come from remortgaging the first property which has now appreciated somewhat over 7-8 years. The 30 year and 99 year UK/USA average for property increase is around 5-6% so if the first property was brought for US $350 000 then 7 years later it should be worth US $500 000. So you can remortgage it and release significant equity. Also if the initial rent was US $1500 a month it should now be around US $2 000 a month – so some of the rental income can go towards your third (and final) deposit.
Where you stand after 12 years:
Teaching Package (step 10-12 plus one management allowance)
Base Salary+Bonus: US $55 000 gross = US $38 000 net.
Accommodation Allowance: US $15 000 / yr net.
Free Tuition for 2 dependents: Value of US $ 40 000 /yr net.
Other Benefits combined (Flights/Insurance/Allowances): US $12 000 (net)
Total net ‘equivalent income’: US $105 000.
Your 3 investment Properties worth $400 000 each (in today’s money) give you property investments worth US $1 200 000 (of which you own around 350 000 and the bank 850 000) these collectively should appreciate by about US $70 000 a year gross or US $50 000 net once you have paid capital gains tax (if/when you sell). Your rental ‘income’ should also be around $70 000 a year gross or US $55 000 a year net. So your total net gain in assets and rental income is US $105 000 a year.
Total net ‘income’ from package (105 000) and investments (105 000) is then 210 000. Any online salary calculator should tell you that a US$300 000 gross package gives you around US$210 000 net.
Once you reach this point, hopefully after a 12 year global adventure following some basic lifestyle guidelines, then you probably can scale back on savings and enjoy the fruits of your labor. A fourth investment property would, in the UK, push you into the 40% tax bracket on your rental income.
Mini FAQ:
The model is flawed as you assume 5-6% house price increase and 4-5% rental increase
Every year centre left and centre right governments print lots of money, inflation is really just another form of tax and in life taxes are certain. Centre right governments also have additional policies which are friendly towards stock market prices and house prices. Centre left governments print even more money to invest in schools and hospitals which in the long run causes more inflation. Governments tend to want house prices to slowly rise due to the ‘wealth affect’ and do not want large falls in house values. Young people unable to buy a home (or use their parents money to buy) are only 10-15% of the electorate. Also both centre left and centre right think tanks accept that immigration is a net benefit to an economy. So as long as young people from around the world want to go to college (or work) in the UK or USA and some of them stay then there will be a steady increase in population.
You can’t count free tuition, increase in house prices and rent as ‘income’.
If your kids can go to a very good school which would normally charge US $20 000 (or more) a year from your net income then you could consider that a benefit of equivalent value. Businesses certainly do when advertising a 'package. If you own a house that increases 50 000 then if you sell it you can pocket 40 000. If someone else is paying US $1500 a month towards a mortgage of a property in your name then that is US$1500 that you don’t have to pay. The UK government last year changed it’s stance to consider rent to landlords as personal income.
It’s all a bit ‘evil’ – guardian readers wont’ like it.
If you can’t beat’em join’em. Also by increasing your worth you are going to pay significantly more tax, some of which will be used for good causes. Money you send home from abroad will ‘flow’ around your home country, so each US$100 you send home is worth US$400-$500 to the local economy. Being financially independent will mean you pay into the system not take money from it and may mean you don’t have to teach rich kids for the rest of your career. Later on you could teach in an inner city school or a school for children with learning disabilities, giving it your best shot knowing you don’t really need the money. Alternately if you are a manager you can try to take a positive approach again knowing that you don’t really need the extra money.
You can’t work abroad and buy a property back home.
Yes you can.
Managing savings and buying properties sounds like quite a lot of work and 12 years feels like a long time away – is there a plan B?
Yes –marry another IS teacher.
Definitely not a plan B – signing up for a plan with an international expat pension or life assurance provider which gives you a glossy brochure showing middle aged or retired people on a boat or beach is definitely NOT a good idea. These guys chop 1-2% a year off your hard earned savings which devastates the long term value of your savings/retirement fund.
What about Index funds – I am coming at this from a UK/personal perspective and have gone down the route of buy to let (rental) investments. Index funds in a low cost low tax scheme may also work.
What about money in high interest accounts – Getting 5% from a cash account means 4% after tax which means your savings are only matching inflation.
This is really a general investment plan, not specific to IS teachers.
IS teachers regularly are able to save US$15 000 – US$ 20 000 a year. People working back home regularly are able to save US $ 0 a year (though they usually do get a pension).
Have you followed this plan yourself?
No – I didn’t really save the first 4 years but then matured/wised up a bit and in my 13th year teaching am in year 10 of this plan. What’s above is a best case scenario.
What about age?
The younger you start the better – this cannot be overstated. However a 12 year plan should still be achievable starting at age 50.
Any further reading?
You could try Rich Dad Poor Dad (the poor dad is ironically a teacher), The Barefoot Investor or similar books . The millionair next door is also worth a look. You should also read up on tax law in your home country.
Should I take financial advice from forum posts?
Probably not – but you could use it as a starting point for further reading.
Several years ago I chose to try and work in tier 1 and 2 IS rather than join my former classmates working for an oil or pharma company. Part of my decision was that I thought I had a realistic model where teaching in IS worked out more lucrative overall than a career in engineering.
How an IS teacher can ‘earn’ 300K (US) a year:
So this is a 12 year plan based on gaining better conditions (with experience) in international schools, purchasing three buy to let (rental) properties and including free tuition and increase in asset values as ‘earnings’ to reach the headline figure. I am assuming any financial crisis during the next 12 years would eventually be countered by some form of quantitative easing (i.e. printing money) as happened after 2007/2008 which would mean house prices (or stock markets) are re-inflated.
Years 1-5 – developing saving habits and purchasing your first buy to let (rental) investment
In your first year as an IS teacher you need to (i) begin to develop good saving habits and (ii) make sure you have a credit card back home (in the UK/USA etc) which you use and pay off regularly. Many (though not all) popular IS destinations offer far better saving potential than back home. One key saving is not running a car, I strongly recommend you don’t unless you really need to. Also try eating in with friends or eating at local restaurants for most meals outside of school. If you want western food have McDonalds every now and then and keep fancy western restaurants and cocktails as a treat. Apart from the annual trip home to see family you should travel regionally (i.e. China to the Phillipines) and book your flights and hotel well in advance. Torrent sites mean you can download most movies, TV shows and ebooks for free (the FBI are not going to chase you to China), just buy the occasional book or movie ticket.
Your aim is to save US $20 000 a year, though this plan should still work as long as you consistently save US $15 000. Once you have a savings habit you should find it doesn’t hinder you quality of life, you may even feel more content at the end of each month with more money in the bank.
By year 5 you should have saved US $100 000 (or at least US $80 000), this is the deposit for your first buy to let (rental) investment. As long as you have been regularly using and paying off your credit card from back home (and maintained a general bank account back home as well) then your Experian.com credit score should comfortably be good enough to get financing. There are multiple specialist agencies and lenders that offer expat mortgages and you CAN get financing. Your buy to let (rental) investment should be one that will rent easily (near a working population of 20 000 or more, close to local amenities, good transport connections, 2 or 3 bedrooms) and with a deposit of US $100 000 you should be able to buy a property worth US $400 000. It’s a fair amount of paperwork but very much worth your time. If you like the 80/20 model then your time spent managing savings and buying a property definitely falls in the 20% section.
Note: While property prices can be volatile rental rates are fairly consistent and usually creep up around 4-5% a year. So as long as you are using the rent to cover the mortgage with some positive cash flow then you don’t need to worry too much about short term fluctuations in the property value.
Years 6-9: Better conditions, second income stream and second property purchase.
By the start of your sixth year you should be earning a bit more due to extra experience, better paying school and/or perhaps a promotion of some sort. Also if you have five years IS experience, are in your second (or third) year at your current IS and you are well on top of your classes you may be able to develop a second income stream. One straightforward and above board approach is to become an IB Examiner, which will top up your savings a bit. Another potentially more lucrative area is tutoring. I began tutoring in my fifth year in international education and earned/saved an extra US $15 000 a year for three years. I gave it up in my eighth year as it means working more evenings and weekends and I had got what was needed from it.
Your aim is to save another US $80 000 to US $100 000 (in today’s money) and purchase another buy to let property valued at US $350 000 to US $400 000. Again regular saving needn’t feel like a huge sacrifice because many IS offer very good saving potential through some fairly simple lifestyle choices. You should be an accomplished saver by now and your self discipline in this area may help in other areas. Having already purchased one investment property then you should find getting financing and buying the second one somewhat easier. You should be able to use the same lender and the paperwork requirement will be the same or lower then the first purchase.
Years 10-12: top level conditions and third (and final) buy to let/rental property.
Going into your tenth year at an IS if you have done your job well and not been unluckly with line managers you should find your pay and conditions again somewhat improved with a good benefits package that covers a spouse and 2 dependents.
The final push is to keep saving US $20 000 (in today’s money) and get ready to buy your third investment property. For this one you only need to save half a deposit because the other half should come from remortgaging the first property which has now appreciated somewhat over 7-8 years. The 30 year and 99 year UK/USA average for property increase is around 5-6% so if the first property was brought for US $350 000 then 7 years later it should be worth US $500 000. So you can remortgage it and release significant equity. Also if the initial rent was US $1500 a month it should now be around US $2 000 a month – so some of the rental income can go towards your third (and final) deposit.
Where you stand after 12 years:
Teaching Package (step 10-12 plus one management allowance)
Base Salary+Bonus: US $55 000 gross = US $38 000 net.
Accommodation Allowance: US $15 000 / yr net.
Free Tuition for 2 dependents: Value of US $ 40 000 /yr net.
Other Benefits combined (Flights/Insurance/Allowances): US $12 000 (net)
Total net ‘equivalent income’: US $105 000.
Your 3 investment Properties worth $400 000 each (in today’s money) give you property investments worth US $1 200 000 (of which you own around 350 000 and the bank 850 000) these collectively should appreciate by about US $70 000 a year gross or US $50 000 net once you have paid capital gains tax (if/when you sell). Your rental ‘income’ should also be around $70 000 a year gross or US $55 000 a year net. So your total net gain in assets and rental income is US $105 000 a year.
Total net ‘income’ from package (105 000) and investments (105 000) is then 210 000. Any online salary calculator should tell you that a US$300 000 gross package gives you around US$210 000 net.
Once you reach this point, hopefully after a 12 year global adventure following some basic lifestyle guidelines, then you probably can scale back on savings and enjoy the fruits of your labor. A fourth investment property would, in the UK, push you into the 40% tax bracket on your rental income.
Mini FAQ:
The model is flawed as you assume 5-6% house price increase and 4-5% rental increase
Every year centre left and centre right governments print lots of money, inflation is really just another form of tax and in life taxes are certain. Centre right governments also have additional policies which are friendly towards stock market prices and house prices. Centre left governments print even more money to invest in schools and hospitals which in the long run causes more inflation. Governments tend to want house prices to slowly rise due to the ‘wealth affect’ and do not want large falls in house values. Young people unable to buy a home (or use their parents money to buy) are only 10-15% of the electorate. Also both centre left and centre right think tanks accept that immigration is a net benefit to an economy. So as long as young people from around the world want to go to college (or work) in the UK or USA and some of them stay then there will be a steady increase in population.
You can’t count free tuition, increase in house prices and rent as ‘income’.
If your kids can go to a very good school which would normally charge US $20 000 (or more) a year from your net income then you could consider that a benefit of equivalent value. Businesses certainly do when advertising a 'package. If you own a house that increases 50 000 then if you sell it you can pocket 40 000. If someone else is paying US $1500 a month towards a mortgage of a property in your name then that is US$1500 that you don’t have to pay. The UK government last year changed it’s stance to consider rent to landlords as personal income.
It’s all a bit ‘evil’ – guardian readers wont’ like it.
If you can’t beat’em join’em. Also by increasing your worth you are going to pay significantly more tax, some of which will be used for good causes. Money you send home from abroad will ‘flow’ around your home country, so each US$100 you send home is worth US$400-$500 to the local economy. Being financially independent will mean you pay into the system not take money from it and may mean you don’t have to teach rich kids for the rest of your career. Later on you could teach in an inner city school or a school for children with learning disabilities, giving it your best shot knowing you don’t really need the money. Alternately if you are a manager you can try to take a positive approach again knowing that you don’t really need the extra money.
You can’t work abroad and buy a property back home.
Yes you can.
Managing savings and buying properties sounds like quite a lot of work and 12 years feels like a long time away – is there a plan B?
Yes –marry another IS teacher.
Definitely not a plan B – signing up for a plan with an international expat pension or life assurance provider which gives you a glossy brochure showing middle aged or retired people on a boat or beach is definitely NOT a good idea. These guys chop 1-2% a year off your hard earned savings which devastates the long term value of your savings/retirement fund.
What about Index funds – I am coming at this from a UK/personal perspective and have gone down the route of buy to let (rental) investments. Index funds in a low cost low tax scheme may also work.
What about money in high interest accounts – Getting 5% from a cash account means 4% after tax which means your savings are only matching inflation.
This is really a general investment plan, not specific to IS teachers.
IS teachers regularly are able to save US$15 000 – US$ 20 000 a year. People working back home regularly are able to save US $ 0 a year (though they usually do get a pension).
Have you followed this plan yourself?
No – I didn’t really save the first 4 years but then matured/wised up a bit and in my 13th year teaching am in year 10 of this plan. What’s above is a best case scenario.
What about age?
The younger you start the better – this cannot be overstated. However a 12 year plan should still be achievable starting at age 50.
Any further reading?
You could try Rich Dad Poor Dad (the poor dad is ironically a teacher), The Barefoot Investor or similar books . The millionair next door is also worth a look. You should also read up on tax law in your home country.
Should I take financial advice from forum posts?
Probably not – but you could use it as a starting point for further reading.