If you’ve just landed your first job, the idea of earning a salary, enjoying company benefits and embarking on a new career will undoubtedly be exciting. However, the South African economy remains stagnant and job security can never be guaranteed.
Now’s the time to take stock of your finances and fortify your financial position going forward. Here’s how.
Understand your employment contract
In the excitement of having secured permanent employment, you may not feel it necessary to pay attention to the fine print in your employment contract. While most employers out there are reputable, it is always advisable to understand the terms and conditions of your employment contract to ensure that your rights are protected. Request a copy of the signed employment contract and keep it in a safe place. Ensure that the contract includes all details on your remuneration, bonuses or commissions, leave, overtime pay, work hours and job description.
Understand the company benefits
When starting your first job, you will inevitably attend some form of induction session during which your employee benefits will be explained to you. These could include medical aid, retirement funding, group life cover, allowances and parking. It’s understandable to feel overwhelmed by the technical jargon but make it your mission to understand the benefits you are being offered by your employer. While retirement is not likely to be high up on your agenda, you can reduce your tax bill by contributing towards a retirement fund, so be sure to find out about your retirement fund options.
Get onto a medical aid
In the absence of a good hospital plan, it is unlikely that you be able to cover the costs of private hospital care. One of the most important first steps is to get yourself registered on a reputable medical aid that provides hospital cover of at least 100% of medical aid tariff. If you have been a dependant on your parents’ medical aid, you will likely need to move off their scheme now that you are not financially dependent on them. Most open medical schemes provide excellent hospital cover at selected hospital networks at more affordable rates.
Don’t be pressured into buying policies
If your company has a contracted financial advisor or broker, you may feel pressured into buying policies or setting up investments from him. If you are feeling pressured and/or unsure whether you need the policy or investment he is proposing, rather seek external, independent financial advice.
Protect your income
Having said that, taking out an income protection benefit should be a priority. If you are disabled or suffer from a severe illness to the extent that you are unable to work, you will effectively lose your income and become a financial burden on your parents or a family member. However, disability insurance is a highly technical area of risk and you need expert advice to ensure that you put the right cover in place. Do not just sign up for the first policy that is offered to you. Find an independent advisor who can fully assess your needs, and who will present you with at least three comparative solutions and quotes.
Understand your payslip
Make a point of going through your first payslip so that you understand every deduction and how your net pay is calculated. Bear in mind that errors do happen, so make it a habit to check your payslip every month.
Budget according to your net income
While your gross salary may sound great, it is your net income that you need to use when setting up your budget. If you’re not sure what your net pay is going to be, ask HR or Payroll to do the calculations for you so that you can start working on your budget. This is the time to ensure that you can live within your means and that you do not begin incurring lifestyle debt.
Review your bank account
The type of bank account that you used while you were a student may no longer be appropriate for your needs. Do your research online to find a bank account that caters for young professionals, paying careful attention to bank charges.
Register as a taxpayer
If you are not already registered as a taxpayer, now is the time to do it. Most employers submit their employee income tax registrations directly to Sars on behalf of their employees, so confirm with your employer that they will do this for you.
Beware of unforeseen costs
There may be hidden costs associated with your new job such as having to pay for parking, using more petrol, eating in the canteen and buying new work clothes. Try to keep a handle on these costs and manage your expenses carefully.
Prioritise your student debt
If you have student debt, put plans in place to pay off your debt as soon as possible. Make sure you understand the structure of your student loan and keep track of the balance, charges and repayments. Ideally, you will want to pay more than you owe every month, although this is not always possible. To make sure that your debt does not grow, ensure that you pay your minimum amount every month, on time.
Start building an emergency fund
If you do not have an emergency fund to access in the event of large, unforeseeable expenses – think new tyre for your car or hospital co-payment – you will need to incur debt to pay for these expenses. Building up an emergency fund takes time, so set yourself a goal – even if it’s only R50 per month – and work towards accumulating a lump sum equivalent to at least three times your monthly income. Ideally, keep your emergency fund in a separate account that is specifically earmarked for this purpose.
Set up your debit orders
Once you know on what day of the month your salary will be paid into your bank account, make a point of aligning all your debit orders. You might want to give yourself a few days between payday and the day that your debit orders run. This will allow you time to check your finances and make sure that all your debit orders can run without a problem – bearing in mind that unpaid debit orders cost money and affect your credit score.
Set up a filing system
Choose a filing system that works for you, whether paper or electronic. For as long as your work, you are going to need to have access to important documents such as payslips, medical aid statements, bank account and credit card statements, policy documents and investment reports. You will also need these documents to file your tax returns, so keep them in a safe and accessible place.
Learn how to do your tax returns
While your finances are relatively simple, it’s a good idea to learn how to file your tax returns. The Sars e-filing site provides an excellent step-by-step guide to doing your e-filing. In addition, there are loads of other online workshops and portals that assist with e-filing.
Update your LinkedIn profile
Make sure to keep your LinkedIn profile updated with your new position, job title and areas of responsibilities. Start actively connecting with people affiliated with your industry to raise your professional profile. Ensure that your profile picture is professional and that your skills are listed accurately – and don’t be shy to ask colleagues to endorse your skills.
Take advantage of training opportunities
Let your employer know that you are interested in any training or development opportunities offered by the company. Any additional certificate or qualification that you obtain will enhance your CV, increase your earning potential and diversify your areas of expertise. Remember to keep copies of all certificates and qualification to add to your CV.
Build a good credit record
A good credit record is essential if you need to obtain any sort of financing in the future, so be deliberate about building a good credit score. Ensure that all your accounts are paid on time and in full every month. Ensure that you manage your bank account responsibly, bearing in mind that when applying for finance you will be asked to produce your last three months’ worth of bank statements for scrutiny.
Be strategic with extra income
Put your hand up for any extra work or overtime opportunities, and then employ the extra cash to good use. Similarly, if you earn a bonus or incentives, don’t waste the opportunity to use the extra money to pay off your student debt, boost your emergency fund, invest in a tax-free savings account or reduce your tax liability by setting up an RA.
Don’t be taken advantage of by family and friends
Being newly employed, you may be perceived by family and friends as being cash-flush. Earning a regular income, you may find yourself being approached for loans, expected to pay for everyone’s drinks when going out, or have unfair demands made on your finances. Be sure to create your boundaries, keep your financial affairs private, and be resolute in pursuing your financial goals.
Don’t discount a second income
In uncertain economic times, having a second source of income is a good idea – especially if it can create a passive income for you. While you are young and have relatively few personal responsibilities – and with the benefit of a long investment horizon – use your spare time to generate some extra cash so that you can start building up your nest egg sooner. Whether it’s after-hours tutoring, coaching sport, or developing websites and social media platforms, take every opportunity you can to boost your earnings.