Your hard work studying for a degree or diploma has paid off, you have your first job as a young professional, and you’re finally earning some real cash. Gone are the days of digging between the couch cushions looking for loose change! Unfortunately, you may already have found out how tricky managing your money can be, too. As you start taking on more responsibilities, maintaining control of your finances can get even trickier.

Do you often find yourself wondering where all your money has gone by the middle of the month? This is usually caused by spending without any financial planning. A hundred rand here and there, and many small purchases on impulse can add up quickly.

Instead of spending with no plan, create a budget and stick to it. You can draw up your budget the old-fashioned way with a pencil and paper, but why not take advantage of free budgeting tools online like MoneyTracker from Nedbank? Tools like MoneyTracker make it simple and intuitive for you to assign spending to separate budget categories, and because they allow you to track your spending in each category, it’s easy to see where you need to cut back to live within your means.
 

Planning your budget

When you receive your first salary, don’t get a shock when the amount deposited is less than the gross salary you were offered. Check your payslip – it will list your gross salary and any deductions, and then your net salary: the amount you are actually paid. The most common deductions are for pay-as-you-earn (PAYE) income tax, your Unemployment Insurance Fund (UIF) contribution, and medical aid or retirement contributions, if you’re signed up to your employer’s plans.

As an example: after PAYE, UIF and other deductions from a gross salary of R20,000, your net salary might be around R15,200 – that’s the monthly income you will have to work with when you plan your budget.

The point of a budget is to cover essential monthly expenses like rent, insurance, groceries, electricity, water, transport and the other necessities of a young professional’s life. Some of these expenses are fixed and some vary each month, but they should all be included in your monthly budget. What’s left over, you can assign to non-essential expenses.
 

Consider the 50/30/20 budget formula

Another way to divide up your net salary that many young professionals find helpful is the 50/30/20 formula: allocating 50% of your net salary to essential expenses, 30% to lifestyle expenses and 20% to your future financial well-being – priorities like savings and investments (including home loan repayments) and your retirement plan.

If you’re using the 50/30/20 formula, your essential expenses include rent (if you’re a tenant), groceries, transportation, water and electricity. These expenses contribute to your daily necessities – but this is also an area in which you can adjust expenses by knowing the difference between a want and a need. For example, deodorant might be considered a need, but a fancy designer fragrance is a want. Try implementing cost-saving measures like buying items on sale, or in bulk so you can split the cost with a friend, using less electricity by switching off appliances at the wall plug when not in use, or cutting transportation costs by carpooling.

Lifestyle expenses – 30% of your budget in the 50/30/20 formula – are your personal expenses like streaming subscriptions, clothing, gym contracts, entertainment and hobbies. When the cost of living is rising or money is tight, this is often the area in which you can make the most cuts so you can keep paying essential expenses and investing in your financial future. That doesn’t mean you can never have fun or spoil yourself – you just need the discipline to do so strictly within the limit you’ve set for lifestyle expenses in your budget. Having a long-term financial plan, and focusing on it whenever temptation beckons, is one way to build that discipline. It’s easier to delay gratification if you know you can continue paying your essential expenses while building a solid financial future to reward you for your patience.

Building that future is not just about retirement planning – although young professionals should know that the earlier you start to save for your retirement, the more comfortable your golden years are likely to be. But in addition to your retirement investment, part of the 20% you’re putting away for the future every month could go into a notice or fixed deposit account until you’ve saved enough for a deposit on a house, and then into your home loan payments. Owning your own home makes your future more secure because it’s a high-value asset.

The responsibility of managing your finances begins on the day you earn your first rand and continues throughout your life. It's never too late to start! Download The Essential Guide to Money Management to help you make better financial choices and see how your money can work for you.
 

Invest in your future financial freedom

By developing good money habits now, you are setting yourself up for a debt-free future. As a young professional, it’s a good idea to consult a financial advisor to help you plan your financial future with the right investments and insurance cover to fit your budget – simply ask your relationship banker to connect you to a wealth advisor.

To find out more, download our career toolkit for young professionals.

If you’re under 30 and have a 4-year degree or NQF level 8 equivalent qualification, Private Clients from Nedbank is designed to enable your aspirations as a young professional. Join Private Clients today.