Your first pay check - what now?

Image: Getty
Image: Getty

Starting a career means newfound independence, which brings all the ups and downs of adulthood – the ability to stand on one’s own two feet and the inevitable financial responsibilities of doing so.

Kenosi Magosha, Head of Client Solutions Saving at Sanlam Personal Finance, says that young people entering the job market in 2018 need to go back to basics in order to kick off on the right financial track.

Here, Magosha outlines some important factors that young people should consider to lay the foundation for a good financial future:

Understand your payslip

  • Know the difference between gross and net pay. Gross is the amount you earn before deductions; net is the amount you take home after deductions. In terms of deductions, your employer pays the following on your behalf:
  • Unemployment Insurance Fund (UIF): This provides short-term relief in the event of unemployment or the inability to work. You contribute 1% of your remuneration and your employer matches this, making the total contribution 2%.
  • Pay As Your Earn (PAYE): This is the tax you have to pay by law, according to what you earn.
  • Other benefits: Additional deductions could include medical aid, pension contributions, life cover and income protection, depending on your company’s offerings.

Be wise about other benefits

Employers often offer additional perks to employees. Before you sign up for these, chat to a financial adviser so you can ask the human resources department the right questions.

For example:

  • Does the employer offer life cover? Will you be covered for any pre-existing conditions?
  • Is there a company pension, provident or retirement annuity (RA) fund? How much can you contribute?
  • Does the income protection benefit cover temporary only or is permanent disability also covered?

It is important to understand if there are any gaps in the cover provided by your employer to ensure that you are not financially exposed either for when unfortunate events happen or in relation to saving for your retirement.

Choose your medical scheme and gap cover

Get help choosing a medical aid that’s appropriate for your needs and apply as soon as possible to avoid extended waiting periods. Some employers offer a group medical scheme with various options ranging from low cost options to comprehensive options which are more expensive. Check if your employer subsidises your medical aid contributions and if this forms part of your gross pay.

Start budgeting

Draw up a budget which shows how much pay you take home and all the other expenses for each month. A new job usually comes with other responsibilities and costs which you may not have incurred as a student so it is important to prioritise your spending in a monthly budget. 

Invest in tomorrow

Kick start smart savings and investing habits for wealth creation and retirement. Retirement may seem like a distant prospect, but the earlier you start saving, the better. The earlier you start on this the better so you can benefit from escalating effect of compound interest and being able to take on more risk (e.g. investing in the stock market vs. cash) to get better returns over time.

Get to grips with student loans and other debt

Paying off student loans can be challenging in the context of all the demands on your money. Ensure that you work your repayment plan into your budget and that it meets with your loan’s stipulations.  Having a new job will make you a potentially attractive customer for loan providers. It is important to understand “good” and “bad” debt so that you don’t fall into financial distress by accepting “bad” debt. Aim not to accrue “bad” debt which is debt used to pay for consumption and only consider good debt e.g. a home loan.

Manage your family’s expectations

Young professionals are frequently expected to financially assist close and extended families, which can have a devastating financial impact if not properly managed. It’s very difficult to feel like you’re letting loved ones down, but it’s also imperative to exercise the discipline to say no to pay for things which you can’t afford or which can compromise your financial security. Manage family expectations on what you can pay for and the amount and rather look for opportunity to empower than create long-term dependency.

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