Academics and teachers are often on 9 month contracts rather than 12 month. That means that there’s often not a paycheck coming in for 3 months out of the year. For folks used to budgeting the 9 month paychecks as if they were 12 month, that can be a problem.
There are a number of different ways that people deal with the summer months.
Let the school do the math
Perhaps the easiest (though not economically optimal) is to ask the school to prorate the 9 month salary and pay it over 12 months. Not all schools offer this option, though some offer it as the default (it is very common for K-12 teachers, for example). The benefit to doing this is that no planning needs to go into this option. The negative is that you get three months worth of income later than you would have otherwise, which means you miss out on debt repayment savings or investment gains while you wait. Back when she was an academic, #2 chose this option. She calculated the interest she could earn on the extra money if she got it over 9 months, and it was something like $11. She decided it was worth $11 to her in order to get the same amount of money every month.
Get more $
An attractive option is to earn additional summer money, although this requires extra work. Summer money can come in the form of teaching summer classes, taking on additional administrative roles, or getting summer money through grants. For people who do not have university options, it is possible to take on another job or make some additional money via consulting. #1 loves getting grant money, but it doesn’t happen every year.
Another attractive option is to be married to someone who makes enough money to live on during the summer without having to save, although this requires either luck in love or sacrifice. This option requires not lifestyle inflating to the point where you cannot live on the spouse’s salary alone for three months. This summer #1 is sort of doing that, but with a hefty back-up emergency fund that she’s been saving to refill after our most recent car purchase.
Save when you’re paid
For many of us, saving is the best (or only) option. There are different ways to save.
If you generally make a lot more than your expenses, you can just save what you don’t spend and then figure out what to do with the leftover money in the Fall when you get your first paycheck of the new school year. This method requires you to be putting away more than your required summer expenses during the school year and to be able to moderate your optional expenses based on how much you have in the bank. This method is basically what we did the first few years when we were living like graduate students on professor salaries. That additional money would end up going into IRAs every October. Ironically, this is how we handled money when we didn’t have as much money because we also didn’t have enough of an emergency fund to have many luxuries built into our budget. As our savings and income grew, we were able to take more risks with spending (ex. eating out once or twice a week), and our monthly spending has become more predictable.
If your gap between income and spending isn’t that large, then you’ll need to do some math. You can figure out the expenses needed for 3 months, by taking your annual expenses, dividing by 12 and multiplying by 3, though if any big bills come due in the summer (property taxes, life insurance, etc.) those will also need to be taken into consideration. Then you can save up until you hit that target number. Alternatively, you can divide the total amount needed by 9 and put the same amount away every month, possibly via an auto-deposit. #1 saves up to the Target number and then pads it with some additional emergency fund (the emergency fund part is larger when her DH is unemployed than when he is employed– likely this summer most of that money will just roll over to next year).
If you have the resources or have problems with impulse control, you can put money in CDs or Termshares that come due when you need the money in the summer. Some credit unions also allow “Christmas clubs,” where they automatically deduct money from your account that you can’t touch until a pre-determined date, that are more general than just saving for Christmas, though they generally charge you money rather than giving you interest for the option. Back in grad school when #1 got paid 2x/year, she put a significant portion of her first paycheck into a CD due 9 months later so that we’d have money to live on during the summer (interests rates were high and my income was low, so the $200 or so that we got in interest via doing that was highly welcome).
If you have a lot of resources, you can undrip dividends from stocks during unpaid months, though it’s not clear this would be optimal unless you have a lot of wealth but not a lot of income (maybe if you’re one of those mythical trust-fund humanities profs that people on the Chronicle forums loved to complain about).
Sometimes it is just hard to save money when you have it. When that happens, it is likely that the summer will be leaner than it should be. There are a few ways to trick yourself into spending necessary money when you have it so you don’t have to pay it when it runs out. For example, you can prepay required summer expenses like insurance or summer camps during the paid months. Another thing #1 used to do when money was tighter was to put off getting reimbursements for things like daycare or credit card rewards until Summer– those little credit card rewards were really helpful when checking got low near the end. Another trick is to put reimbursements and other “found” money in a bank account that is separate from your main one and then only tap it when you need it or make regular transfers from it in the summer. #1 is a big fan of hiding money from herself in online savings accounts as a way to decrease unnecessary spending.
Those of you on 9 or 10 month contracts, give or take, how do you handle the unpaid months?