The Guide To Your First Pay
Getting your first salary can be exhilarating yet daunting at the same time. Exhilarating with the amount of autonomy and newfound independence, but also daunting with this whole unfamiliar adulthood thing hitting you hard from all sides. Your first salary is but the tip of the huge iceberg of responsibilities to come, so you can’t be too myopic in your financial planning!
Curious, we asked our community members what they did with their first pay and these are the top few answers we got:
Surprisingly, other also got other answers like “popped bottles at the club” and “spent every single cent”.
These are fine examples of how you should not let exhilaration cloud your senses because there are a few important things you have to do. Here’s a guide to what you should do when you get your first pay:
TL;DR: Allocating Your First Salary
- Plan with the correct mindset
- Save 20% of your salary
- Allocate 50% of your salary to expenses
- Grow remaining 30%
- Temptations to avoid
1. Plan Your Salary
To properly manage your money, you need to have the right attitude. For a start, if you’re reading this right now and haven’t spent all your pay on partying at a club, that shows some awareness about budgeting.
Step 1: Track Your Expenses
The first step to making smarter financial decisions is to be aware of your spending habits, and working from there.
You can do this manually with well labelled excel sheet or automatically with expense tracking apps.
Step 2: Budget
This rest of this article will largely refer back to this rule.
The correct mindset starts with the discipline of sitting yourself down and allocating your finances. When you plan for your first pay, you don’t just plan for your first pay but those subsequent paycheques that will start coming in too and this will set a good foundation.
Save 20% of your salary for emergency funds and future use.
Set aside about 50% if your salary as your expenses. By expenses, we don’t mean a car or a new bag, but your phone bills, groceries, expenditure on food and necessities, and of course, it’s good to start sharing the burden of household bills with your parents.
Planning your finances for the future also includes planning how to grow your money. About 30% of your salary should be strategically set aside for these purposes.
Attempt to save 20% of your salary or more. To put that into perspective, if your take-home pay after CPF contribution is $2000, that will be at least $400.
One thing you can do is to transfer salary into a different savings account with high interest rates. To find out which savings account is best suited for you, try the savings account calculator.
Your savings contribute to emergency funds for times when you need to replace your washing machine to when you need to pay for hospital bills. There’s no one better to depend on for money than yourself. Also, you will thank the amount of savings you have amassed when you need to pay for your wedding, a long vacation trip or a nice present for your parents’ 60th birthday in the future.
Read further on the best savings account for fresh grads here.
3. Things To Spend On
Put aside about 50% of your salary for your expenses. Now, 50% may seem somewhat frivolous, but it is only realistic when you realise the amount you have to spent to pay things like bills and loans.
Clear Your Student Loans
Figure out your total loan to be repaid, interest rate and minimum monthly repayment sum.
Using CPF’s loan calculator serves as a good tool to help you see how much you have to put aside to pay your loans monthly.
Read further on repaying student loans here.
Your impression of insurance may have been slightly warped by the friends and strangers who have approached you to buy your plans from them. The truth is, insurance helps to provide financial support when you really need it and reduces uncertainties in your life. It acts as a safety net of sorts.
Firstly, check what insurance you already have, otherwise what your parents have already insured you with.
Secondly, these are the key insurances you may consider getting:
Read further on key insurance policies here.
Pay Your Bills & Give Allowance To Your Parents
A rough gauge of the common bills you need to pay includes:
- Phone Bills = $40
- Credit Card Bills =$500
- Transportation Money (Not a ‘bill’ but just as important) = $100
Those are only your own bills but don’t forget the household and electricity bills your parents have been paying all along. Share or take over the burden if you have the means to do so, and portion out some money in your expenses to give a monthly allowance to your parents.
Like one of our community members commented, “Filial piety is the most important, it’s in our Asian blood!”
Something interesting a lot of our community members voted for in the quiz mentioned above was that they spent money on buying or tailoring a set of officewear. It does sound like a practical expenditure since it is necessary and spending on a quality suit can last you a long time.
As mentioned in our previous article, the best places seem to be recommended to tailor a suit for both men and women:
- Ai Lee Tailors at Seah Im Food Court
- Grandcity Shirt Manufacturer at Frontier Building
- Serangoon Lian Hin Tailor at Upper Serangoon Road.
4. Grow Your Money: Invest
Rather than leaving all your remaining money in a savings account with very low interest rates, you can invest your money. This does not have to be high-risk and complicated, you can always start with a low-risk, monthly sum.
Firstly, make sure you have set up your Central Depository Account (CDP).
Secondly, see how much money you are comfortable with setting aside for investing. These are some of the minimum sums required:
- Singapore Savings Bond (SSB) – $500
- Straits Times Index ETF – $100
- ABF Government Bond – $100
- Robo-advisors – $100
You can consider these monthly-investment products that are easy to start with:
Read more about investing for beginners here.
5. Temptations To Not Waste Money On
“With great power comes great responsibility” – Marvel
We know, having your first pay and disposable income makes you feel unusually powerful, but don’t lose sight of the bigger picture.
Here’s a reminder of some things you want to do, but probably should not:
- Sign up for a gym membership – You can try these free/affordable alternatives instead
- Spend it all on alcohol and partying
- Splurge on rash purchases
- A Car
- An expensive vacation
- Unnecessary “treats” to 5 different groups of friends just because you had your first pay
Check out our blog for more unbiased opinions on your personal finance journey.