Earning your first paycheque after years of studying can be as rewarding as it is overwhelming — and this is why this transition must be handled with as much financial know-how as possible.
"Graduates who have just entered the job market this year will, for the first time, experience a drastic change in their finances. That's simply because moving from a monthly allowance (if you had one) to a salary is a big shift in terms of cash flow," says head of consumer education at FNB Eunice Sibiya.
Earning a salary is quite liberating, but if not well managed it could lead to financial problems.
"Earning a salary is quite liberating, but if not well managed it could lead to financial problems," she cautions.
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She believes a lack of financial literacy puts a number of graduates entering the workplace at risk of not managing their finances sensibly — but this can be avoided.
Here are the most common factors leading to financial difficulties that graduates must watch out for:
1. Not working on a budget
Good money management starts with knowing where and how your money is being spent, so a monthly budget is important, to ensure you track your monthly spending. Without a detailed budget plan, it's difficult to track your spending patterns. Failure to plan can lead to you running out of money before the end of the month, which can potentially result in you borrowing to survive until payday.
2. Peer pressure
Following the latest trends and trying to keep up with friends can be costly, because it often leads to a life you cannot afford, which ultimately leads to financial strain. It's better to be honest with yourself about what you can and cannot afford. This is not to say you must not spoil yourself occasionally – but never try to match up to how other people live their lives, because everyone's financial circumstances differ.
3. Impulse purchases
Not planning your purchases has a direct impact on your budget, so consider planning your purchases to avoid impulse buying of things that you don't need. Avoiding impulse purchases helps you plan and save for the items that are really essential, or luxuries you've long desired. Further, notes Sibiya, it's important to accept that you will most likely not be able to buy everything you've ever wanted with that first salary.
4. Not having an emergency fund
An emergency fund is designed to cover shortfalls when an unexpected expense occurs – such as a medical emergency or a car breaking down. Such expenses can have a huge impact on your finances, and if you don't plan for them you might end up having to take on debt to cover the costs. Therefore it is advisable to create an emergency fund, which you should try to build until it is at least three to six months' worth of income.
"While it is understandable that moving from a monthly allowance to a salary will have a huge psychological shift in terms of your cash flow, it is important to be financially smart from the day you start working, to be able to have a secure financial future. Have short, medium and long-term financial goals and be disciplined," Sibiya says.