How to make the most of your first salary

Earning your first salary is a memorable and exciting time. For as long as you can remember you were planning how to spend that first pay cheque. A down payment on a car, dinner at a fancy restaurant for you and a partner, flowers for your mom.

However, not one of these is a good choice. Without proper financial management your first salary can easily run out before the next payday. During these tough economic times, it is even more important to start instilling good financial habits from a young age, especially when you get your first pay cheque.

“Now more than ever, young South Africans need to manage their finances as best as they possibly can and know exactly where their hard-earned money is going. Times are tough and there is just no reprieve on the way,” says Charnel Collins, CEO at National Debt Advisors (NDA).

ALSO READ: Buying your first car? Here is some practical advice

According to 2022 data from First National Bank (FNB), the country’s average middle-income earners spend up to 80% of their salaries within five days of getting paid. This means that most consumers survive on 20% of their monthly income for more than 20 days of the month.

Beware of the debt trap

Furthermore, consumer analytics and research company Eighty20 recently reported that the average middle-class South African now spends roughly two-thirds of their salary paying off their debts. South Africans are about to face even more financial pressure following the recent increase in the repo rate.

Collins believes good money habits starts from a young age and the youth of the country need to be financially educated from the onset.

“It is important to educate people from a very young age about the pitfalls of credit agreements and for them to adopt healthy money habits early on starting with their very first salary. While earning your first salary is an exciting moment for all new job starters, the deductions often come as a surprise to first-time employees.”

ALSO READ: Even the rich buckling under credit stress

She also warns against using credit that tends to become increasingly accessible once you have a job. “Credit can be a useful tool at times but not all debt is created equally. It is important to break the debt cycle at the critical point when career starters join the workforce and credit becomes available. Once you start earning a salary, you become susceptible to institutions trying to offer you credit which can be very tempting.”

While a well-managed credit card can be a useful financial tool, without the proper financial knowledge it can quickly get out of control, she cautions.

Importance of a budget

Budgeting is also an important habit to learn early on and is a good way of taking financial control to see where adjustments can be made to save even the smallest of amounts. When you budget, you know exactly where all your money is going and how to save effectively and leave enough money for unexpected expenses and emergencies, she says.

Collins likes the 50/30/20 budgeting rule as a savings strategy and an easy guideline for planning your budget. “How it works is that 50% of your net income goes to needs like rent, groceries and utilities, while 30% goes to wants, such as hobbies, vacations and dining out and 20% to financial goals, such as savings and debt payments. Understanding your priorities and budgeting according to those needs is what makes this budgeting rule so efficient.”

She has these top tips to ensure saving and spending your salary remains on the right track for young people during Youth Month:

• Draw up a realistic budget based on your net income and stick to it.
• Set financial goals and identify what you wish to achieve financially.
• Determine the amount you will need to invest or save for each goal and for how long.
• Track how much you spend by analysing your spending patterns. You can easily identify some of the changes or habits you need to make your money last longer.
• Spend wisely and only buy what you can afford, not what you can borrow.
• Pay off debts quickly as the repo rate hike means that consumers will pay more on their monthly debt repayments. The sooner your debt is paid off, the better.

“Young South Africans need to empower themselves with financial know-how to have a better relationship with money for a secure financial future. Youth month is a good reminder of the importance of creating set patterns that will lead to better decision making in the long run,” Collins says.