Earning your first salary is a big milestone that calls for a celebration. It is also an opportunity to set yourself up for financial wellness that will help you to realise the dreams you hold for your life.
When you land your first job after completing your studies or finishing school, it is best to plan how you will spend your first salary. This will allow you to mark your achievement by choosing and developing the financial habits that will lead to future financial success.
The first step is to draw up a personal budget that covers all your vital expenses like food, rent and transport. The budget should not include wants like the latest designer clothes or a new cellphone but only those expenses that you absolutely cannot live without. Also establish what benefits you are receiving from your employer and take out your own medical insurance (medical aid) and pension fund if your salary package does not include this. The same principle applies to gig workers who are unlikely to receive benefits from their client.
“It may seem too early to prioritise retirement savings but there is a principle of compound interest at play in savings. If you start saving now, the principle starts taking effect in a few years to significantly boost your investment,” says Tshiamo Molanda, Head Youth at Standard Bank South Africa. “The next step young professionals can take to build their financial muscle is to set up an emergency savings fund for unforeseen events like being retrenched from work or repairing their car. You may even want to prepare to help family members who may experience financial and other challenges in future.”
Having an emergency fund may not seem important when you don’t have dependents or too many responsibilities yet but knowing that you are ready to handle any eventualities that may take place will give you peace of mind. Staying clear of bad debt is also an important habit to develop early in your career as this will enable you to weather financial storms and save more to reach your financial goals. Bad debt is the credit used to live above your means and good debt is the loans that build your wealth and future like a mortgage or study loan.
“A great exercise to do when you start earning, is to write down your financial goals, such as buying a car, paying a deposit on an apartment, learning a new language, sending your children to a private school or traveling to foreign countries,” says Molanda. “This will motivate you to save, as you are applying self-discipline for a specific goal.”
Molanda adds it is advisable to see a financial advisor when you start earning as these financial experts could advise you on the portion of your income you need to save and invest to realise your specific financial goals.
“Financial advisors are ideally placed to assist young professionals who are set to accumulate wealth over time,” says Molanda. “Saving and investing in the right way now, will enable you to live the life you envision.”