10 April 2018
So, you finished your studies and you landed your first formal job! Great, but take a moment and think about your first paycheque in the following manner…
Assuming you want to retire at the statutory age of 65, you only have approximately 480 paycheques left. I say approximately because the number of paycheques could vary depending on what happens in the future. For example, you could lose your job and it could take 6 months to find another one which means you have 6 paycheques less in your working career. Or, you’re not able to work through ill health or disability which is a subject for another day. The bottom line is you have only so many paycheques- NEVER take them for granted and always use them wisely!
Be that as it may, at the end of the month the reality of money in the bank is welcomed with excitement, enthusiasm and the best intentions. However, it’s amazing how the choices we make with our first paycheque become a habit with every paycheque thereafter. The truth is, we are our own worst enemy when it comes to making smart financial decisions.
If you want to be in control of your financial future make a habit of acting on and thinking about the following 5 pointers you should avoid doing.
1. Not Paying Yourself First
The first thing you need to do once you receive money is to pay yourself first. PAY YOURSELF FIRST, whether it’s 50, 100 or 1000 rand a month. Decide on a specific percentage, 10% is a good start, and once you receive your salary, immediately transfer ‘’your payment’’ to a separate account. This amount is your savings towards a financial goal or investment. The balance is what you use to pay all your expenses. If paying yourself first is a weird and unfamiliar concept to you, think of it as just another fixed expense in your budget. If you’re concerned about the discipline to pay yourself first, set up an automatic transfer on your bank account to your savings account.
2. Ignore Budgeting
Firstly, a budget is a planning, monitoring and money management tool which helps you to prioritise expenses, given your income. Earning money comes with the responsibility to make wise and smart money decisions. It all starts with a budget. Secondly, it’s a plan on how you prioritise the use of your money on a monthly basis. Apart from that, budgets also help you to save for those financial goals I mentioned before. Ignoring your budget could cost you dearly…how else will you know if you’re living within or above your means?
3. Getting hit by Credit Mania
Earning a regular salary is your ticket to credit according to credit providers. Personal loans, credit cards, retail store cards, overdrafts, car loans, mortgage loans – you can have it all – at a price of course – and that price is interest. Lots of interest! The temptation is great to fall for that flattering call offering you a credit card, store card or personal loan. Before you know it the bulk of your paycheque is consumed by repayments on credit obligations. Okay, granted, sometimes there is just no other alternative to take on credit. However, it’s crucial to manage it with discipline and limit yourself to the temptations of clever marketing. Believe me, the gratification of buying something on credit disappears as soon as the first repayment is due. Most often the gratification is replaced by regret.
4. Falling for the Cash Flow Trap
Do not be fooled by month-end cash flow after your paycheque cleared in your account. Remember the BUDGET; don’t forget that most of the cash flow has been spoken for in your budget. The budget will give you an idea of “WHAT” you spend your money on, cash flow is “WHEN” you’ll spend your money. Let me give you an example. One of the items on your budget is ‘’entertainment’’. You have allocated a certain amount and your budget can easily accommodate it. However, if you spend it all in the first weekend after pay date, you’ll have to sacrifice motivation, happiness and enjoyment for the rest of the month. It might be seen as old school, but take it from me, the “envelope’’ system still works perfectly today. Look at your budget and put the cash equivalent for each budget item in a separate envelope- name each envelope according to the specific budget item. Once the specific envelope is empty, that’s it, it’s empty. Finished, no more spending allowed on that specific budget item. Living in an electronic banking environment you could consider putting the slips of each budget item purchased in the specific budget envelope. That way you can keep track of your “envelope” spending. Remember, even if a specific envelope might be empty, doesn’t mean your pocket is empty! This practical system taught me discipline which I was struggling with at the time.
5. Keeping up with the "Joneses"!
Major adjustments to a more lavish lifestyle could soon land you in hot water. Buying a new car or moving into a more upmarket apartment is some of the first lifestyle adjusting changes we are tempted to make. The truth is its human nature and we should be mindful of this fact. Unfortunately, the price tag could cause major damage to future financial independence. If you ask most financially successful people and they all concur that one of the first things to remember is to NOT live beyond your means.
In conclusion, it would be fair to say the worst of the worst thing we could do with our first paycheque is succumbing to our temptations and if its "buddy", impulsiveness joins the party, the financial hangover could last a lifetime.