Young, middle-class South Africans struggling to make their salary last

Earning your first salary can be a proud moment for many, but without proper financial management, it can also easily run out before the next payday.

This is according to the CEO of National Debt Advisors (NDA), Charnel Collins, who said during these tough economic times, it is even more important to start instilling good financial habits from a young age – especially when you get your first paycheque.

Unfortunately, Collins added that there is no reprieve on the way. “Now more than ever, young South Africans need to manage their finances as best as they possibly can and know exactly where their hard-earned money is going.”

According to data from First National Bank (FNB), the country’s average middle-income earners spend up to 80% of their salary within five days of getting paid.

This means that most consumers are surviving on 20% of their monthly income for more than 20 days of the month. Furthermore, consumer analytics and research company Eighty20 recently reported that the average middle-class South African now spends roughly two-thirds of their salary paying off their debts.

These numbers will not change anytime soon, with some experts suggesting these will be even worse after the interest rate was hiked for the tenth time by the Monetary Policy Committee (MPC) in May 2023.

How to approach your salary wisely

Collins believes good money habits start from a young age, and the country’s youth need to be financially educated as early as possible.

“It’s important to educate people from a very young age about the pitfalls of credit agreements and for them to adopt healthy money habits early on – from their very first salary,” she said.

“While earning your first salary is an exciting moment for all new job starters, the deductions often come as a surprise to first-time employees,” she added.

Collins also cautions against using credit that tends to become increasingly accessible once you have a job. “Credit can be a useful tool at times; however, not all debt is created equally.”

Once you start earning a salary, you become susceptible to institutions trying to offer you credit which can be very tempting.

While a well-managed credit card can be a useful financial tool, without the proper financial knowledge, it can quickly get out of control, cautions Collins.

She adds that budgeting is also an important habit to learn early on and is a good way of taking financial control to see where adjustments can be made to save even the smallest of amounts.

“When budgeting, you know exactly where all your money is going, and also how to save effectively and leave enough money for unexpected expenses and emergencies,” she said.

Collins referred to the 50/30/20 budgeting rule as a savings strategy and an easy guideline for planning your budget.

“How it works is that 50% of your net income goes to needs like rent, groceries, and utilities; 30% to wants such as hobbies, vacations and dining out; and 20% to financial goals such as savings and debt payments. Understanding your priorities and budgeting according to these needs is what makes this budgeting rule so efficient,” she said.

Collins offers offered these tips for ensuring saving and spending your salary remains on the right track:

• Budgeting – Draw up a realistic budget based on your net income and stick to it.

• Setting financial goals – decide on what you wish to achieve financially.

• Saving/investing – Determine the amount you will need to save for each goal and for how long.

• Track how much you spend – By analysing your spending patterns, you can easily identify some of the changes/habits that need to be done in order to make your money last longer.

• Spend wisely – Buy what you can afford, not what you can borrow.

• Paying off debts – The repo rate hike means that consumers will be paying more on their monthly debt repayments. The sooner your debt is paid off, the better.

“Young South Africans need to empower themselves with financial know-how in order to have a better relationship with money for a secure financial future. Youth month is a good reminder of the importance of creating set patterns that will lead to better decision-making in the long run,” said Collins.

Read: How much money you need to be in South Africa’s richest 1%