Here’s what to do with your first salary

Congratulations! You have finally earned your first salary, it feels great doesn’t it?

Before you go to the club though, and make it rain, here are a couple of factors to consider before you throw it all away and find yourself borrowing money for bus fare to work on Monday.

1.Note your benefits:

Look through your pay slip, there are a couple of deductions. Some of you have been introduced to the hefty thing called PAYE – Pay As You Earn. Also ensure that your employer remits part of your pay to NSSF and NHIF for these are essential for your retirement plan and healthcare.

Are you a member of a Sacco or saving scheme? If so, is the agreed amount you are saving deducted? Ensure that every single deduction on your pay slip is clear to you.

If there is one that is unclear, talk to your HR manager and accountant. Also find out whether there is a wrongful debit.

2. Budget:

Now that you know exactly how much you earn, this is the time to also draw a monthly budget on your cash flow. What are your immediate expenses? These include rent, bus fare, lunch and clothing. How much do you intend to save?

3. Clear your debt:

The general rule of thumb is, don’t spend more than 30 per cent of your income to pay debt. You need to sit down and make a debt payment plan to pay back all you owe in a comfortable manner without straining too much of your income. This is especially essential if you took a HELB loan. The last thing you want is to walk into penalties.

4.Rainy Day account: 

Life happens, a close relative could pass away, an accident could happen, things that need money always crop up during the month. It is therefore reassuring to know that you have some money set aside to alleviate such setbacks. Save at least 10 per cent of your net income to take care of the rainy days. 

5.Saving and Investment: 

If working in an organisation that doesn’t have a sacco, shop for one and join, it is the fastest form of saving and getting access to credit. Most saccos will allow you to borrow up to three times the amount saved at interest rates much lower than banks. You also earn annual dividends against the amount saved.

You can start saving from as low as Sh1,000 a month and steadily increase your contribution. Saving is all about consistency, not volumes. You’d rather save Sh1,000 monthly, than Sh10,000 once in a year. Consistent saving helps build discipline and restraint. You’ll be grateful when you can afford that trip to Mombasa or Nanyuki in December just because you saved for it. 

6.Thrift Shopping:

Saving money isn’t just about putting money aside, it also applies to spending less when buying an item. You can haggle your way down, or just opt to get the same quality item at a lower price, even if it means going to Gikomba or Toy Market. If you can’t afford it now, save for it.

The same with bus fare, if you adjust your commuting hours, you save money - leave earlier, pay less. Also, why spend Sh30-50 to the bus stop when you can walk?

That comes to Sh600-1,000 cumulatively over a 20-day working month, money you could have saved towards something that you actually need. Every penny counts. 

7.Set financial goals:

They don’t have to be deep and profound, and you can set aside goals for just a year. Maybe you want a nice holiday in December or during your annual leave. How about checking out the prices off peak and start saving for that trip?

Find out the costs of the hotel reservations, trips around the town or area, food and emergency cash and then save for that.

If you want to buy a house, a car or even build a house, first do your costing, which will include finding out from the professionals on ideal pricing, which you can then use to plan. 

8.Wants vs. Needs:

Just because you want a car or a fancy new smart phone doesn’t mean you need it.

The secret to healthy finances is delayed gratification. You can still party, but do you really have to spend Sh5,000 every weekend? How about coffee dates, does it have to be every day?

Why not plan it once or twice month and have a budget restriction on your expenditure?

This way, you save more and in turn cushion your future.