Do you work for a nonprofit? A lot of our friends and clients do! One thing we have discovered is that there is a misconception that those working in this area probably cannot afford access to professional financial advice, or at least quality financial advice. We don’t agree with this (after all, a number of our clients work for nonprofits) and we are working hard to prove it wrong.
To start, we dedicated a podcast episode to the topic of financial planning for nonprofit workers and now we are writing it out for you as well. In a lot of ways, financial planning for nonprofit workers is the same as for everyone else. There are two main differences, though. Money is often not a major component of your career choices and, for that reason, your income potential may be limited. Because of this, it is even more important for you to be strategic with your finances and plan wisely.
Take Advantage Of Your Unique Opportunities
The first step in financial planning for nonprofit workers is looking for unique opportunities available to you because of your nonprofit work. One of the most well-known is the Public Service Loan Forgiveness (PSLF) program where government and nonprofit employees can have student loans forgiven after ten years of qualifying payments. Teachers also have similar loan forgiveness programs available to them. Even pastors were recently added to the ranks of those who are eligible for PSLF.
Speaking of pastors, we work with quite a few and one unique opportunity for them is the clergy housing allowance. Pastors and ministers are eligible to receive a portion of their income income-tax-free when they use it for housing expenses.
If you do international work, whether as a teacher, missionary, or something else, you are likely eligible for unique tax credits as well. Saving money on taxes allows you to put that money to work for you elsewhere.
Those are just three examples of opportunities that may be available to you as a nonprofit employee. There are other programs and advantages out there as well. To find them, talk to your coworkers or others in your area of service to see if they are familiar with any. It is important for you to be aware of the different strategies available to you and take full advantage of them.
Know What You Have To Work With
The next part is the foundation for all financial planning, cash flow. It is imperative that you have a solid understanding of how much money you have coming in and where it is going. The most common way of tracking cash flow is with a traditional budget, but the most important thing is that you figure out a system that works well for you.
One thing to watch out for as you look at what you have coming in and going out is irregular expenses. Things like Christmas gifts, vacations, and your next car are easily overlooked and end up being major expenses. The best way to plan for them is to estimate their annual cost, divide it by 12, then set aside that amount each month.
Once you have your actual spending outlined, we would encourage you to look at it and see how it aligns with your values. You may find that your actions don’t align with your stated values and want to make changes.
While having a good grasp of cash flow is important for everyone, it is even more critical for nonprofit workers because your income may be less than if you were working in a corporate job. It is also helpful to know where you stand at a given time as far as what you own and what you owe. When you subtract your debts from what you own, the result is your net worth. Tracking your net worth over time can be a good measure of your stewardship and shows you how you are doing at turning your income into long-term wealth.
Invest And Save Wisely
Many nonprofits offer retirement savings plans for their employees although many don’t. Of those who do offer them, some are good plans and others are not. Sadly, nonprofits seem to be disproportionately targeted by annuity and insurance salespeople who can provide suboptimal, expensive investments.
Since as a nonprofit worker you may have a limited income, you have to be extra careful what you do with it as you prepare for the future. As such, it is vital that you understand the options you have access to, such as a 403(b) plan, and the quality and cost of the investments available to you within the plan. If you are unsure as to the quality of your plan, you should get an experienced second set of eyes on it as soon as possible. You want to make the most of every dollar, so the sooner you catch a poor investment option and correct it, the better.
If you don’t have good choices in your plan (or your employer doesn’t offer one at all), you still have options. You can either invest outside of your organization or work with them to make the proper adjustments to improve (or start) their retirement plan.
Focus On The Mission
There’s probably a reason you chose to work for your nonprofit; you are passionate about their mission. Accordingly, it’s possible that you can work longer and have more life balance in that kind of role. Job satisfaction that leads to a longer career may provide more income overall and also reduces savings needs since retirement is shorter. Focusing on the mission of your nonprofit organization will enhance your sense of gratitude and fulfillment and it can be good for you financially too!
You didn’t take your job at a nonprofit for the paycheck, but you still need money to live. How do you maximize your situation? Even with a limited income, you can have a strong financial life and be well prepared for the future. It’s possible, but it isn’t accidental. You will need to be purposeful and plan. You will need to dig in and take the logical steps to get you where you want to go.
One way to be a wise steward of your limited resources is to work with a financial planner to develop a solid plan that reflects both your reality and your goals. If you’d like to meet a financial planner who will applaud your career choices and not turn you away for not having enough money, give us a call.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.