If you’re fortunate enough to have secured your first job, now is the time to take control of your finances and lay the groundwork for your financial planning journey. The prospect of a regular, secure income may sound fantastic but employment comes with its own set of expenses and risks, so take time at the outset of your career to ensure your financial path forward is a secure one.
Your student loan
If you borrowed money to fund your tertiary studies, check the terms and conditions on your student loan. Many student loans provide a grace period of between six to twelve months from when you finish study before your monthly repayments become payable. While the interest rates on student loans are generally lower than on personal loans, interest still accrues and it makes sense to start repaying the loan as soon as possible.
Your employment contract
Go through your employment contract carefully before signing so that you know exactly what you are signing up for. Confirm with HR exactly what date your salary will be paid into your nominated bank account, confirm your tax number, check what deductions will come off your salary, and determine your net pay. If your employer provides for over-time or opportunities to earn extra income, check what the going rate is and be aware of your rights.
Find out if your employer provides you with an opportunity to contribute to a retirement fund as there are significant tax benefits for doing so. However, before simply opting for the default investment option, find out what investment strategies are available to you. If this is your first job, you will no doubt have a long time period over which to invest meaning that you should be able to invest in a fairly aggressive strategy. Determine what medical aid benefits your employer provides, keeping in mind that employers often offer a range of plan options to choose so as to cater for various income levels. If you’re off your parents’ medical aid onto your employer’s fund, be sure that the break in your membership is no longer than 90 days as this can have consequences in respect of waiting periods and exclusions. Network options, although offering limited choice in respect of doctors and hospitals, are generally more cost-effective, so do your research. If your employer offers group risk benefits, be sure to understand the extent to which you are covered in respect of death, disability and/or dread disease. Specifically, if you have debt – such as your student loan – an income protection benefit will give you peace of mind that you will be able to service this debt should you become temporarily or permanently disabled.
If your bank account is geared for life as a student, talk to your bank about switching to an account that is geared for young professionals. Many banks offer reduced banking fees for professionals up to age 30, so it is worth doing your investigations. At the same time, set up your debit orders to align them with the date that your salary will land into your account. While streamlining your banking, ensure that you set withdrawal limits, update passwords and employ all safety mechanisms available to protect against banking fraud.
At the outset of your career you may need to incur some debt in order to ensure that you are mobile and adequately equipped for your job. You may need to upgrade to a more reliable vehicle, buy some work clothes or purchase a new laptop. Either way, take stock of your debt situation and map out a debt repayment plan starting with your first pay cheque. Don’t delay the start of your debt repayment as once you get used to living on your full salary it will be incredibly hard to trim back your expenses in order to service your debt.
While you may have just finished studying, find out whether your employer provides opportunities to study further. Take any opportunity to add to your qualifications, especially if your employer is willing to part- or fully-fund your learning. If you’re not keen to commit to a longer course, consider short-course and online learning options offered by your employer. Be sure to keep copies of all certificates and academic results so as to bolster your CV.
Start your career the right way: by spending less than you earn and saving the rest. Before your first pay cheque lands in your account, prepare a budget taking into account any new line items as a result of your changed personal circumstances. You may have purchased a new car, moved into an apartment closer to the office or upgraded your cell phone, so take these new expenses into account. Don’t forget to account for extra fuel costs, parking costs or increased vehicle insurance. Be ruthless when it comes to cutting non-essential expenses from your budget. If nothing else, Covid-19 has taught us that exercise is free and gym membership is a nice-to-have. Find out in advance what the work dress code is before you spend money unnecessarily on buying formal work clothes. Commit to taking your own lunch and refreshments to work every day. Although many employers subsidise the costs of canteen food, buying lunch at the canteen daily is a sure way to erode your earnings.
Very few people have a clear idea of their short, medium and long-term goals at the outset of their career, so think broad strokes. Do you envisage buying a property at some stage in the next five years? What are your general travel goals? At what age would you like to achieve financial freedom? Do you have plans to continue full-time studies at some stage? Don’t worry too much about the detail at this stage. The idea is to start working towards a set of goals while at the same time ensuring that your financial plan is fluid enough to adapt with them.
Start working towards an emergency fund level that is appropriate for your particular circumstances. While three- to six-months income is the ball-park number in terms of emergency funding, rather err on the side of caution and work towards a bigger number especially in uncertain economic times. A great way to fund for emergencies is to set up a separate savings account online and channel fixed amount of money towards it each month, even if it’s only R100.
Once you’re comfortable with the level of your emergency funding and are contributing towards a retirement fund, consider channelling some funds towards a discretionary investment portfolio. A unit trust portfolio set up through a reputable fund manager or multi-manager is an excellent place to start, and will allow you to access your funds as and when you require them, unlike your retirement funding money.
Ideally, learn how to do your own tax returns online through the e-filing site, or alternatively find a reliable tax practitioner. Either way, start out your relationship with SARS on a good note and never fall behind on your taxes.
Your credit score
A good credit score is a passport to securing credit and financing in the future, so be sure to check your credit score regularly. If you need to apply for financing or a home loan at some point in the future, a poor credit score can affect your ability to borrow money.
Have a super day.
From CRUE INVEST’s “Let’s talk about money” online blog: https://crue.co.za/blog/