How to manage your money when you start working

Getting your first salary is undeniably exciting, and a great step towards independence. A world of spending options is within your reach, and items you have dreamed about may suddenly be attainable. 

It’s wise, however, to act cautiously. Establishing good habits now will help you build a solid financial foundation, and make the most of your hard-earned money.

This article outlines good money behaviours that you can adopt and bad habits you should avoid, as you take your first steps toward financial freedom.

Tip: Starting to save early on will allow you to take advantage of compound interest. Explore savings and investment options today.

Exercise caution from the outset

Managing your money may seem tedious when you get your first salary. Who doesn’t want to splurge with left-over cash, once you’ve paid your bills?  

This, however, will impede your path to financial freedom says Johann Rossouw, a financial planner at Fiscal Private Client Services. Rossouw recommends adopting a responsible approach early on instead.

“By developing good financial habits, building a safety net, taking advantage of compound interest, and avoiding debt, you can set yourself up for long-term financial success,” he says.

Adele Barnard, a senior financial planner and investment specialist at Sanlam, agrees that good financial habits are vital if you want to succeed.

“These include setting up a budget and sticking to it, learning to live within your income, and staying away from bad debt as far as possible,” she says.

Make your money work for you

Setting clear financial goals is the first step towards making the most of your money.  

“When you have goals in mind, you’re likely to stay focused on achieving them and won’t be distracted by short-term impulse buys and financial temptations,” says Rossouw.

“Setting goals gives you a clearer picture of your current financial situation and where you’d like to be in the future.” 

Rossouw and Barnard outline some productive money habits:

• Create a budget. Start by tracking your income and expenses, differentiating between fixed costs, such as rent, transport, and insurance premiums, and variable expenses, such as electricity, clothing, and eating out. Separate wants and needs, and see where you can cut back.
•  Open a savings account for emergencies. This will help you build a bail-out fund for events such as a burst geyser or unexpected medical costs. “Look for a high-yield savings account that pays a competitive interest rate to grow your savings faster, and aim to have enough money to cover three to six months' expenses,” says Rossouw. 
• Automate your savings. “Paying yourself first” sets you on track to take care of future needs. “Set up a debit order, start small, and gradually increase the amount as you’re able,” Rossouw recommends.
• Consider long-term investing. Use tax-efficient vehicles such as a retirement annuity or tax-free savings account.  
• Avoid debt. Unproductive debt can jeopardise your financial future. Avoid using credit cards for unnecessary purchases and focus on paying off existing debt as quickly as possible.
• Use your first bonus wisely. “If you get a bonus, pay off any debt you may have, or invest in yourself by studying further or putting down a deposit on a home,” Barnard says.

The following, say Rossouw and Barnard, are to be avoided:

• Overspending. This can easily lead to debt and financial stress. Instead, focus on living within your means.
• Ignoring your finances. This leads to missed payments, late fees and other financial problems. Stay on top of your bills and review your accounts regularly.
• Not saving. This can leave you vulnerable to financial emergencies, making it harder to achieve your long-term goals. Make saving a priority and aim to save a portion of your monthly income.
• Relying too heavily on credit. This can lead to high interest charges and debt that’s difficult to repay. Use credit responsibly and only when necessary. Don’t live on credit just because it’s readily available, and don’t take the maximum amount you qualify for.
• Impulse buying. This can lead to overspending and buyer’s remorse. Before making a purchase, consider what you’ll forgo to afford it.
• Trying to impress others. Many people go wrong trying to show others they’ve “arrived”, says Barnard. “Stop trying to impress people with big cars and expensive outfits. Also, if you have family responsibility ‘tax’, set boundaries and discuss what you can and can’t afford.”

Tip: It’s never too early to start saving for your retirement. Find out more about the importance of retirement annuities.