“Money is only a tool. It will take you wherever you wish but will not replace you as the driver.”
Ayn Rand
“You have just finished your studies and have started your first job. You are entering the world of adulthood and earning a salary. It is an exciting time with many decisions about spending Money. If you learn to manage your Money while you are young, you will be able to have financial security as you grow older.”
Questions you might have:
- Should you buy or rent accommodation?
- What about the fancy German car you have always dreamed about?
- Designer clothes, shoes or jewellery?
- An expensive cell phone or laptop?
- A big-screen TV with DSTV?
- Pay off your credit card or student loan?
The person who doesn’t know where his next dollar comes from usually doesn’t know where his last dollar went. Unknown
Before you sign up for your first job, look out for the following add-ons that might mean extra Money in your pocket every month.
- Does the job include retirement & pension fund contributions?
- Does it offer medical aid?
- Is there a gym membership at a reduced rate with medical support?
- Do they offer a travel allowance?
- Do they offer a house allowance?
- Do they offer a car allowance?
What is the difference between gross and net income?
Gross pay:
Gross pay is what you make before any deductions.
Nett salary:
Net pay is left after taxes, health benefits, and other deductions are deducted from your paycheck. Knowing the difference will allow you to develop a realistic budget based on your take-home pay.
Budget:
The word “budget” negatively affects many people, but budgeting can help you reach your dreams and goals. Without a budget, you will quickly spend your salary within the first week of the month and have nothing to show. Money goes in three directions: fixed costs, financial goals and flexible spending. A simple way to manage your Money is the 50/30/20 % principle.
- 50% – fixed costs (bond payment, municipal bill, medical aid, insurance)
- 30% – flexible spending (groceries, travelling, eating out, shopping, hobbies and entertainment.)
- 20% – financial goals (savings, paying off loans, credit cards, retirement funds)
The 50/30/20% principle is calculated on your “take-home pay/ net pay, “meaning tax has already been deducted from this amount.
Example of Fixed costs – 50%
- Accommodation: 20%
- Car: 10%
- Insurance: house/car
- Utilities: water, electricity
- Cell phone account
- Telephone account
- Gym membership
- Medical aid
Example of Financial goals – 20%
- Credit card debt repayment: 5%
- Savings: short-term: 5%
- Savings retirement: 10%
- Emergency fund
Example of Flexible spending – 30%
- Petrol
- Groceries
- Hobbies
- TV/DSTV
- Eating out
- Holidays
- Car maintenance
- Parking & traffic tickets
- Salon treatments
- Clothing
- Furniture
Record your expenses
The first step in saving Money is to know how much you are spending. For one month, keep a record of everything you spend. That means you purchase every coffee, newspaper, and break-time snack for the entire month. Once you have your data, organise these numbers by category – petrol, groceries, mortgage, etc. – and get the total amount for each. Draw up a budget.
Now that you have a good idea of your monthly spending, you can build a budget to plan your spending, limit overspending, and ensure that you put Money away for a rainy day.
Note on buying cars:
Buying a car is a significant expense. Unfortunately, we have been duped into spending our hard-earned cash on new, expensive cars for way too long. Between 5000 and 7000 cars in South Africa are repossessed monthly because of non-payment. If you use a car as a status symbol to show the world you are successful, you will probably never be rich.
You should spend at most 10% of your salary on a car. Before you buy a vehicle, ensure you can afford the model’s petrol, maintenance, and insurance. According to the AA, 65 and 70% of the estimated 12 million vehicles on South African roads are uninsured, growing annually. Choose a second-hand car if you need more Money to buy a new car with cash. If you cannot afford a car, use public transport.
Note on buying a house:
You should only buy a house that costs up to two times your yearly gross income. That means if you earn R 300 000 per year, you should buy a house/townhouse in the R 600 000 price range. You should use a 15-year loan period. Remember that you must still pay house insurance and property tax and maintain the house.
Rent:
You might need to rent accommodation if you can’t afford to buy your property. To keep costs down, you can share with a roommate. However, you will need more bedrooms if you are married or have kids. You might also be charged extra if you have pets. To calculate how much to spend on rented accommodation, landlords usually require you to earn three times the monthly rent. It means 30% of your net income. So if you make R 9000 per month, you should not pay more than R 3000/month for accommodation.
Difference between needs and wants:
If you stop a need, like your electricity bill, prescription medication, or car payment, you will experience significant inconvenience. A want, like DSTV, entertainment, and convenient foods, will cause minimal inconvenience if you don’t spend money on it. Water is a need to stay alive; Coke is a want.
Never budget more than 30% of your budget on wants. Wants to fall under flexible spending. It is a good idea to divide flexible spending into needs and wants. For example, bread is a need, and “Oreo cookies” is a want. Both fall under groceries.
“The man who never has money enough to pay his debts has too much of something else.”
-James Lendall Basford
Financial goals
Spend 20% of your net pay on paying off debt and saving money. You should pay off the total amount you owe on your monthly credit card. Never accumulate debt on your credit card because it is the most expensive money you can borrow. It is called a credit card, not a debit card. It should always have a positive credit balance.
If you already buy monthly groceries on a budget plan on your credit card, you are in trouble. The debt will accumulate faster than you can pay it off. Draw up a budget and stick to it until you completely pay it off.
Student loans & bursaries
Many students need to learn to manage Money responsibly. Tempted by freedom and peer pressure, they often spend their study money on new designer clothes, jewellery, a Play-station / DSTV and a big-screen TV. All the Money is wasted when the bills arrive from the university or college.
Opening a separate account for the bursary or study money is wise. Some banks give you the option of three linked accounts in one. Put the Money for books and lectures in a separate fund and only use it for that. Have a different version for your daily living expenses.
Get help
Quiz: Debt Warning signs
You can do a self-test quiz to evaluate your debt problem.
More Help
Job losses: how to survive on less. https://www.mobieg.co.za/personal/job-losses-how-to-survive-on-less/