By Jonathan Theunissen, CFP ®

Earning your first salary is an exciting milestone, but it also comes with important financial responsibilities. How you manage your money from the start can set the foundation for long-term financial success. Here’s how you can maximize your first salary and build a strong financial future.

Understand Your Payslip

Before you start spending, take the time to understand your payslip. Your salary may be subject to deductions such as:

• PAYE (Pay-As-You-Earn Tax): Your employer deducts income tax before you receive your salary.

• UIF (Unemployment Insurance Fund): A small deduction that provides short-term relief if you become unemployed.

• Pension or Provident Fund Contributions: If your employer offers a retirement plan, contributions may be deducted from your salary.

• Medical Aid Contributions: If you’re part of an employer-provided scheme, this will also reflect on your payslip.

Knowing these deductions helps you determine your actual take-home pay and plan your finances accordingly.

Create a Budget

Budgeting is one of the most important financial habits to develop early. A simple rule to follow is the 50/30/20 rule:

• 50% for Needs: Rent, transport, groceries, medical aid, and essential bills.

• 30% for Wants: Entertainment, dining out, and hobbies.

• 20% for Savings & Debt Repayment: Emergency fund, investments, and paying off any student loans.

Using budgeting apps like Vault22 or Google Sheets can help you track your spending and adjust as needed.

Build an Emergency Fund

Life is unpredictable, and having an emergency fund prevents financial setbacks. Aim to save three to six months’ worth of livingexpenses in an accessible account, such as a high-interest savings account or money market account/fund.

Avoid Lifestyle Inflation

It can be tempting to upgrade your lifestyle as your income increases, but try to avoid unnecessary expenses that don’t contribute to your long-term financial goals. Instead of upgrading your car or moving to a more expensive apartment, focus on saving, investing, and paying off debt. Obviously a little lifestyle creep is ok, and it can be helpful to reward yourself for achieving financial planning milestones.

Manage Debt Wisely

If you have credit card or personal loan debt, prioritize paying it off. Interest on these loans is much higher than what one could expect to earn in an investment account. Stick to the following rules:

• Pay off high-interest debt (credit cards, personal loans) as soon as possible.

• If possible, make extra payments on student loans to reduce interest costs.

• Avoid unnecessary debt, such as financing a new car beyond your means.

Start Investing for Financial Freedom

Once you have paid off high interest debt and built an emergency fund you can start investing. The sooner you start, the longer your investment enjoys compounding growth. There are also significant tax incentives when using certain products:

• Contributions to Retirement Annuities (RAs), Pension, and Provident Funds are tax-deductible up to 27.5% of taxable income (capped at R350,000 annually). Growth within these funds, as well as Pension and Provident Preservations funds is tax-free. The fund value is also not taxed at death, as it does not form part of your estate.

If your employer offers a pension or provident fund, contribute as much as possible, to benefit from employer matching.

It is important to have a balance of both retirement and discretionary investments. Retirement accounts provide great tax benefits but discretionary investments offer more flexibility. Discretionary investments can also be used to invest towards shorter-term goals, like a deposit on a house, funding travel or education. A broad range of products and underlying instruments can be accessed, such as Tax-Free Savings Accounts (TFSAs), Exchange-Traded Funds (ETFs), Unit Trusts, and Endowments.

Starting small and being consistent will allow your wealth to grow over time.

Get the Right Insurance

While you may not think about insurance in your early working years, it’s essential for financial security:

• Medical Aid: A hospital plan or comprehensive medical aid ensures you’re covered for unexpected health expenses.

• GAP Cover: Provides for medical aid shortfalls.

• Income Protection & Disability Cover: Protects you in case of an accident or illness that prevents you from working.

• Life Insurance: If you have financial dependents, consider life cover to provide for them in case of unforeseen circumstances.

• Improve Your Financial Knowledge

The more you learn about personal finance, the better decisions you’ll make. Head to the “media” tab on our website for some great resources.

Final Thoughts

Your first salary is more than just money – it’s an opportunity to lay the foundation for financial independence. By budgeting wisely, saving early, avoiding unnecessary debt, and making informed financial decisions, you can create a secure future for yourself.

If you need professional guidance, reach out to us. We offer a range of engagement options and would love to partner with you in your financial planning journey.

For more articles by Jonathan Theunissen, click here.