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It’s official, you’ve signed the contract and you’re employed in your first job.
Is there anything you need to do to manage the money you’ll now be earning?
First you should understand exactly what it is you’re earning.
Depending on how your contract was phrased you’ll be earning a salary plus super or you’ll be earning a salary package which includes super. Establish what it is and then what your take home pay will be.
Set yourself up for life
Lesson number one: this is common sense and may sound very basic but if you learn this lesson now it will keep you in good stead your whole life long. Spend less than you earn.
Before you do anything else with your money – put some aside to save.
To start with – you might like to save 10% of your income. To do this effectively – I’ve always found it is easier to have an automatic account payment that siphons the money directly to a savings account. This way you don’t see it and, therefore, don’t miss it.
You might like to set up your savings account for specific purposes. For example, the first may be an emergency fund which would have around three-month’s salary in it, the next might be saving for a large expense – such as a car or an overseas holiday and the third may be for long-term saving and investment – that could perhaps be used for a house deposit, or a share portfolio or an investment property.
Some people save effectively through an envelope system. Label what each envelope is for and then when you get your pay – take out the amount you want to save in cash and put it in the appropriate envelope.
Super opportunities
Your super will be there to take care of your future retirement, but if you can add a little to it right away and it goes into your super before you even see it, you will be thankful as you get older. Why? Because of the wonderful concept of compound interest.
How does compound interest work? You earn interest on your savings – if you don’t touch this money (which is what happens with super until you retire) you earn interest on interest which means your super begins to increase exponentially.
For example, if you have $10,000 in super in year one and it is earning 5% interest you will have $500 at the end of the year. The following year, you will have $10,500 in super which then earns interest. The year after you have $11,010. And this is just on the first year’s super. If you are adding to that each year, your super might look like this.
| Year | Contribution | Contribution plus total | Interest earned at 5% pa at the end of each year | Total |
| 1 | 10,000 | 10,000 | 500 | 10,500 |
| 2 | 10,000 | 20,500 | 1025 | 21,525 |
| 3 | 10,000 | 31,525 | 1576.25 | 33,101.25 |
| 4 | 10,000 | 43,101.25 | 2155.06 | 45,256.31 |
| 5 | 10,000 | 55,256.31 | 2762.82 | 58,019.12 |
| 6 | 10,000 | 68,019.12 | 3400.96 | 71,420.07 |
| 7 | 10,000 | 81,420.07 | 4071.00 | 85,491.07 |
| 8 | 10,000 | 95,491.07 | 4774.55 | 100,265.62 |
| 9 | 10,000 | 110,265.62 | 5513.28 | 115,778.90 |
| 10 | 10,000 | 125,778.90 | 6288.95 | 132,067.85 |
It starts to move more quickly each year and after year 10 the compounding starts having a big effect.
Look for opportunities
Don’t be too impatient to move from your first job up the next rung of the ladder – but do take opportunities when they arise. Opportunities and extra work in one role may lead to extra skills and the ability to climb the ladder into other roles. And if you are not sure about moving into a new role because you are unsure whether you can do it – remember, if the person offering you the role isn’t sure you can do it they wouldn’t be offering it.
And, typically, during annual review time you should have the opportunity to ask for a pay increase. You may not get it, but every pay increase gives you more money to enjoy now, and to build your future. Anytime you win a raise you should increase the amount you put into your savings accounts.
This will enable you to move ahead. Spending more than you earn will take you backwards and spending everything you earn will keep you in a holding pattern.
Important – to keep in mind
If you have taken a job which is paying a freelance rate or you are invoicing for, you will probably be responsible for paying your own taxes.
If this is the case – don’t forget to put aside money for your tax. Put aside at least 30% to ensure you will be able to cover the tax bill when it is due.
Credit cards and other tips
A regular income will likely enable you to have your first credit card in your name. Credit cards can be great – but to use them to your best advantage you should pay them off each month when they come due. Interest rates are typically very high on these cards and missing payments can entail a fine. It’s your responsibility to ensure that you are not spending what you can’t afford so spend consciously.
Be careful also with Buy Now Pay Later schemes – only use them if you know you will be able to pay them when they become due.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
