Getting your first pay cheque is the most liberating feeling in the world. Now you have your own money, to spend as you see fit and no one can tell you what to do. Right? Well, technically yes. But if you cultivate good financial habits from the word go, sound financial habits will becoming second nature. Here’s what you should and shouldn’t do with your first pay cheque:
Yes, you should:
Draw up a budget. This should be a tally of your income and expenses for the month and will help you make sure that the money you spend does not exceed your salary. Budgeting is going to be an ongoing necessity so best you get used to it now. You should constantly be checking your expenditure against your budget. Know exactly where your money is going.
Join a good medical aid scheme. Initially, you may not need comprehensive cover because you are young and healthy. A hospital plan is what you are looking for at this stage of your life. However, joining now is a good idea because if you leave it too late, you can be charged a late joiner penalty fee and higher premiums.
Set aside at least 15% immediately. Pay yourself first. If your first salary is R10 000 a month, then subtract 15% and tell yourself that it is really a salary of R8 500. That way, it won’t feel like a hardship and you will benefit hugely from the power of compound interest on your savings as the years go by.
Pay off your loan or start studying. If you have a student loan, pay it off as quickly as possible to reduce the interest you pay. If you are lucky enough to not have a student loan hanging over your head, then set aside the money you would have paid towards this and invest in further part-time education for yourself. You are never too old to study and further qualifications will only improve your career prospects.
Start saving for retirement now. I know retirement seems an awfully long way off but the sooner you start saving, the more comfortable you will be in your old age. If you start from your first pay check, you can also get away with saving less compared to someone who only starts saving for retirement at a later age. And yes, this is in addition to the 15% you are already saving.
Spoil yourself a little. The important words here are “a little”. Yes, you should definitely commemorate the occasion by getting yourself something. The key is not to splurge and to keep this amount reasonable.
No, you shouldn’t:
Blow it on an expensive car. This is a depreciating asset. It may be cool when you are swanking around town but in five years’ time, it will have done nothing for your net worth.
Put off saving for the future. Too many people do this and then realise 10 or 20 years later that they have put it off for far too long.
Forget about tax. That initial salary of R8 500 you thought you were going home with? Well, the tax man is going to take a bite out of it first so don’t forget this when you are drawing up your budget.
How you handle your first pay cheque will set the tone for your financial future and your financial habits. It’s also a signal that you have now entered a new phase in your life – the responsible phase. Get to it and manage your money like a pro.