Mark C. Schug is professor of curriculum and instruction and director of the Center for Economic Education at the University of Wisconsin, Milwaukee. He is also coauthor of Houghton Mifflin Social Studies and McDougal Littell's Economics: Choices and Challenges.

William C. Wood is professor of economics and director of the Center for Economic Education at James Madison University in Harrisburg, Virginia.

Teachers often regard themselves as unlikely candidates for financial success, chiefly because they earn low starting salaries. But people of modest means can build wealth over time if they adhere to certain simple strategies. Our goal here is to explain this point as it applies to teachers.

A tale of the teacher who started early
When Pat was getting started in her first teaching job, she didn't know much about personal finance. She had never studied economics or personal finance in school, and she did not come from wealthy family. But, she was certain—since her teacher's salary wasn't all that much—that she would need to act prudently if she wanted to be financially successful. Pat actually became a millionaire. How?

Pat began her teaching career at age twenty-two, earning $30,496—the national estimated average salary for a beginning teacher, according to the American Federation of Teachers. After she signed her first teaching contract, she met with the school district's benefits manager. The benefits manager suggested that Pat begin a savings program separate from the teacher retirement plan provided by the state. She advised Pat to have forty dollars every week withheld from her paycheck and put into a mutual fund account. Pat knew this would be hard but she decided that putting forty dollars aside each week would be the best thing to do for her future.

When Pat retired, it became clear that her sustained program of investment had served her well. She had become a millionaire on her invested funds—over and above what she would receive from the state retirement fund. Her own retirement account was worth more than a million dollars. In getting her lifetime net wealth up to one million dollars, Pat followed these three rules:

1. Start early. Pat began saving when she turned twenty-two, so she had forty-five years in which her savings could grow.
2. Buy and hold. Pat automatically bought a tiny bit more in financial assets each payday with the small amount withheld from her pay. She never touched that account as it grew over the years. Most importantly, she did not withdraw her money and spend it even when times were tough.
3. Diversify. Pat's retirement account was invested in a broad variety of financial assets; it wasn't put into any one asset.

Rule 1: Start early
Money that's saved early so that it can work for a long time counts for a great deal in wealth building.

An early start works well because of the magic of compounding. When you save money, you receive a return. In the case of bank savings accounts, that return is interest. If you leave the interest in the account, then the added interest also earns interest. In other words, savers earn interest on interest through compounding. The longer this process goes on, the more it works for you.

Rule 2: Buy and hold
This means that to build wealth over time, you have to hold on to your long-term savings. You can't be dipping into them frequently, or they won't compound over time in the same way.

• Spend less than you receive. You do this either by earning more or spending less. You can help yourself to spend less by keeping track of where your money is going; then you can cut back in places where you can save small amounts.
• Manage your credit properly. When you're managing your credit properly, you're limiting the number of credit cards you have. You're limiting your purchases to what you can pay off each month, without leaving a balance to accumulate interest that you'll also have to pay. As time goes by, your credit score goes up, making it possible for you to borrow when you have a good reason to borrow.

Rule 3: Diversify
Somebody probably once told you, "Don't put all your eggs in one basket." If you put all your savings into a new start-up toy company, you could get rich if the company succeeded. Or, you could lose all your money if the company failed. That's like having all your eggs in one basket.

How can investors get a worthwhile return while managing the risk? The answer lies in diversifying. When we diversify, we take a lot of small risks rather than a single large risk.

Mutual funds provide individuals investors with a way to diversify. A mutual fund gathers a pool of money by accepting funds from thousands of individual investors. It invests this pool of money in a collection of assets. Because of its large size, a mutual fund can efficiently buy large numbers of different stocks and bonds.

Tax-deferred saving
Teachers can usually take advantage of a type of salary reduction plan called a 403(b). A 403(b) plan allows the school district to deduct an agreed-upon percentage from your paycheck and deposit it in your account with an investment company you have chosen from a list approved by the school district. The contribution is deducted from your paycheck before federal, state, and Social Security taxes are deducted. The money invested in a 403(b) account is allowed to grow on a tax-deferred basis. Taxes are paid when the money is withdrawn at retirement—a time when most people are in a lower tax bracket. Until then, you decide how best to invest the money in your account, depending on your tolerance of risk.

Conclusion
Can teachers be millionaires too? You bet they can! Since most teachers start out earning less than people in other professions, it is all the more important that they start saving and investing now.