Earning your first salary is a memorable and exciting time, but without proper financial management it can also easily run out before the next payday. During these tough economic times, it is even more important to start instilling good financial habits from a young age – especially when you get your first pay cheque.
Speaking in light of National Youth Month, CEO at National Debt Advisors (NDA), Charnel Collins says times are tough and there is just no reprieve on the way. “Now more than ever, young South Africans need to manage their finances as best as they possibly can and know exactly where their hard-earned money is going.”
According to 2022 data from First National Bank (FNB), the country’s average middle-income earners spend up to 80% of their salary within five days of getting paid. This means that most consumers are surviving on 20% of their monthly income for more than 20 days of the month. Furthermore, Consumer analytics and research company Eighty20 recently reported that the average middle-class South African now spends roughly two-thirds of their salary paying off their debts. South Africans are about to face even more financial pressure following the increase in the repo rate recently announced by the Monetary Policy Committee (MPC).
Collins believes good money habits starts from a young age and the youth of the country need to be financially educated from the onset. “It’s important to educate people from a very young age about the pitfalls of credit agreements and for them to adopt healthy money habits early on – from their very first salary. While earning your first salary is an exciting moment for all new job starters, the deductions often come as a surprise to first-time employees,” says Collins.
She also cautions against using credit that tends to become increasingly accessible once you have a job. “Credit can be a useful tool at times however, not all debt is created equally.” She highlights the importance of breaking the debt cycle at the critical point when career starters join the workforce and credit becomes available. “Once you start earning a salary, you become susceptible to institutions trying to offer you credit which can be very tempting,” she says. While a well-managed credit card can be a useful financial tool, without the proper financial knowledge it can quickly get out of control, cautions Collins.
She adds that budgeting is also an important habit to learn early on and is a good way of taking financial control to see where adjustments can be made to save even the smallest of amounts. “When budgeting, you know exactly where all your money is going, and also how to save effectively and leave enough money for unexpected expenses and emergencies,” she says.
She refers to the 50/30/20 budgeting rule as a savings strategy and an easy guideline for planning your budget. “How it works is that 50% of your net income goes to needs like rent, groceries, and utilities; 30% to wants such as hobbies, vacations and dining out; and 20% to financial goals such as, savings and debt payments. Understanding your priorities and budgeting according to those needs is what makes this budgeting rule so efficient.”
Collins offers her top tips in ensuring saving and spending your salary remains on the right track:
- Budgeting: Draw up a realistic budget based on your net income and stick to it.
- Setting financial goals: Identify what you wish to achieve financially.
- Saving / investing: Determine the amount you will need to invest for each goal and for how long.
- Track how much you spend: By analysing your spending patterns, you can easily identify some of the changes / habits that need to be done in order to make your money last longer.
- Spend wisely: Buy what you can afford, not what you can borrow.
- Paying off debts: The repo rate hike means that consumers will be paying more on their monthly debt repayments. The sooner your debt is paid off, the better.
“Young South Africans need to empower themselves with financial know-how in order to have a better relationship with money for a secure financial future. Youth month is a good reminder of the importance of creating set patterns that will lead to better decision making in the long run,” concludes Collins.