Budget with your first salary

It’s a big moment when you get your first salary in your first job.

Finally earning your own money conjures images of freedom and being able to splash out on all kinds of goodies.

As exciting as it may be, you need to apply some discipline. It’s far wiser to use the first money you make to start setting yourself up for financial security and independence later in life, according to Ashlyn Padayachee, general manager at Eduloan, a company that provides student finance.

He has made a few suggestions that may help one budget better:

• It’s so easy to overlook small expenses, which means that you don’t really know how much it costs you to live each month. By itemising each thing that you have to pay for every month, you will get a clear picture of your financial situation and can budget more accurately. You will know how much you need to spend each month to sustain the basics of your life. You will then also know exactly how much money you have left over each month.

“One of the most important principles of personal financial management is to pay off debt at soon as you can. For a simple reason – debt is expensive; it continues to cost you more and more money,” said Padayachee.

• Interest charges mean that you end up paying more for whatever you have received, so it’s really important to minimise these additional charges. The best way to do this is to pay off your debt as quickly as possible. This is also one of the first major steps towards financial security.
• Put aside some of your income each month in order to build up for emergencies. That way if something goes wrong, such as your laptop breaking down, you’ll have the money to sort out the problem.

The earlier you start putting away money for your future, the more you will have later. One of the best ways of doing this is to take out a few retirement annuities (RAs). You can have as many as you want, so as you start earning more, invest in additional RAs. This will stand you in good stead later in life.

Many financial advisers recommend using just three financial areas to budget and manage your money:

• Fifty percent of your salary should be allocated to fixed living expenses such as rent, car payments, gym memberships and so forth. Ideally, you should always try to keep these costs down to no more than 50 percent of what you earn.
• Twenty percent should be allocated to your future financial goals – whether that is to have a hefty retirement fund, or to save money to start your own business later on. It includes anything that protects your financial future such as retirement annuities and insurance policies. This is also where you allocate your debt repayment. The idea being that you shouldn’t spend more than 20 percent of your monthly salary in these areas.
• The last 30 percent is your liquid cash – your spending power. This flexible money is what you use for eating out, entertainment, hobbies and interests. The important thing here is to make sure that you never spend more than 30 percent of your salary on these things.

There’s nothing wrong with giving yourself occasional treats as a reward for being so responsible with your money. So don’t forget that while financial responsibility is a serious matter, you also need to make sure that you enjoy your life. It’s fine to spoil yourself once in a while.

Details: Eduloan 011 726 6490.