All that hard work to get your CV together, and those sleepless nights prepping for job interviews have paid off - you’ve got your first job! Now that you’ve hit this milestone and left job hunting behind, you’re no doubt planning how you might spend your first pay. But there are some other considerations too.
Good personal financial management is the building block for future financial independence. Getting the financial basics right, from your very first paycheck, will help ensure you make the most of your hard-earned cash. It doesn’t matter whether it’s a part-time gig while you complete your study, or a full-time career move out of university or high school, many of these initial financial decisions are “set and forget” once you have them in place. It’s making sure they happen in the first place that can be the hard part.
1. Choose your KiwiSaver provider
As part of the onboarding process at your new job, you’ll be asked if you want to be enrolled in KiwiSaver (you may already have a fund set up – it would pay to check with your parents/caregivers if you’re not sure). You can choose to enrol in KiwiSaver or not, advise your preferred provider, or let Inland Revenue (IRD) enrol you with a default KiwiSaver provider.
If you already have a KiwiSaver account and want to choose a new provider, there are a couple of things to consider:
- Who owns the fund you’re investing in?
- What is your provider investing in (are they reputable companies or industries)?
- How does their fee structure work and is it transparent?
- How much flexibility do you have in terms of the risk of your investment?
The Kiwi Wealth KiwiSaver Scheme is responsibly invested and provides investors with five investment funds to choose from. Investor choice means you can decide the level of risk you want to take on with your retirement investment. This can depend on whether your investment is short term or long term (for instance whether you planning on using KiwiSaver for a first-home withdrawal or for retirement instead). Our KiwiSaver fund options range from the lower-risk Cash Fund through to the higher-risk Growth Fund which invests mostly in shares.
Our funds have transparent fees and we are the largest New Zealand owned KiwiSaver provider, owned by NZ Post, ACC and the NZ Super Fund – the same people who own Kiwibank.
2. Know your tax code
In your first few days on the job, or even before you start, your employer will be keen to set you up on their payroll system so they can pay you correctly. You need to provide some key information so you can be paid properly, and on time. Be prepared to provide the following information:
Your IRD number
Generally, you’ll only ever have one IRD number. You need an IRD number for all tax-related events (earning income, opening a bank account etc.). If you need to register for one, they are free and you can do it online.
Your tax code
Your tax code determines how much tax you’ll pay, based on the income you earn. It can also differ depending on whether you have a student loan, are working two jobs, etc. It’s up to you to determine the correct tax code. You don’t want to be in a situation where you’re not paying enough tax, as you will need to repay this once IRD calculate your correct payments.
Your KiwiSaver information
If you’ve chosen to join KiwiSaver, you’ll need to give your new employer your KiwiSaver details and let them know how much you wish to contribute from your salary. The minimum contribution amount is 3% of your salary, you can also elect to increase your contribution to 4%, 6%, 8% or even up to 10% - ask your KiwiSaver provider how to do this.
If you join KiwiSaver, your employer will contribute at least 3% to your KiwiSaver fund as well.
Your bank account details
Your bank account details – to ensure your employer pays your salary/wages into the correct bank account.
3. How to calculate your take home pay
Great you’ve had a job offer, but how much of your salary or wages will you actually see on payday? Your employer offer is your gross pay, but you’ll have tax and other deductions coming off that amount each pay cycle. Your employer manages your tax deductions for you and pays these direct to IRD - deductions from your pay can include:
- PAYE (Pay As You Earn) income tax
- Student Loan Repayments
- KiwiSaver contributions
- Child Support
- ACC levies
To get an accurate gauge of your take home pay, try a handy online calculator.
4. Work out your budget and expenses
Now you have an income, make sure you can cover your current and anticipated expenses by drawing up a simple budget. If you have some money left over, start thinking about your best use of this. You may have some initial expenses for your new job - new clothes or a car upgrade to get you to and from work. If not, this is a great time to save and invest for your future financial independence.
5. Understand your savings goals
No matter how much leftover money you have after each pay, setting yourself savings goals early on is really important for long term financial security. If you don’t have a plan for that extra $10 or $500 each month, you’ll find you may lose track of how you spend it. Setting it aside in a dedicated savings account can certainly help you buy that new phone, car, holiday or first house. As your savings grow, you can look at other investment options too.
6. Learn the investing basics
Shares, funds, property - it all sounds very grown-up, but it doesn’t need to be. You can open a Kiwi Wealth managed funds account with as little as $100. A managed fund is an investment option that takes the complexity out of investing and helps you save. Managed funds usually generate greater returns than term deposits over the long term (with some ups and downs along the way) and have a range of fund options to suit your investment timeframe and attitude to risk.
7. Create an emergency fund
No one likes to think about the worst that could happen, but you can be prepared for the unexpected. Creating an emergency savings fund will allow you to take a leave of absence from your job if you need to for a medical or family emergency. It would enable you to travel and take time off to care for a loved one. It would help with urgent appliance repairs if say, your washing machine was to suddenly break.
Having an emergency fund in place for sudden, unexpected situations means you won’t have to rely on your credit card or a personal loan to see you through. The big question is often how much will you need to allow for. Sorted recommend putting aside at least three months of livingf expenses. This would allow you to take time off work, travel if you needed to and give you some breathing space to get a new job if you had to leave your previous one.
8. Make a plan to get out of debt
Debt comes in many forms - it may be a student loan, a personal loan, credit card debt or a private loan from a family member. Now you have a regular income, you can start to think about how you might repay that debt.
Student loans in New Zealand are paid back automatically from your salary and wages. As long as you live in New Zealand, you won’t be charged interest, so you can de-prioritise - it’s not a debt that will grow any bigger while you make your mandatory payments.
Debts such as credit card debt, personal loans and car loans often have hefty interest rates, so these are good to prioritise repaying when you have additional cash to make extra repayments. You might want to consider prioritising the repayment of these high-interest debts over and above creating an emergency fund or saving for your next holiday.
9. Work on your credit score
Credit scores are important for any future plans you have that involve asking for finance. Whether that’s applying for a credit card or getting a home loan, your application will take your credit score into account. Your credit score will hold information about approved credit applications and whether you’ve paid it off on time. Lenders can access this information to assess your creditworthiness so it’s important to consider what steps you’ll make to have this in a good state.
There is some great information available about how credit scores work and why you should improve yours. A quick guide though is to consider the below points:
- Pay your credit card bills on time
- Pay any other outstanding debt or loans on time
- Pay utility bills on time (such as your mobile phone and internet bills)
- Pay back hire purchases within the agreed timeframe.
10. Consider your insurance options
Although you’ve just got your first job, have you thought about what would happen if you suddenly couldn’t work? You may have a mortgage, personal loan repayments, or dependents relying on your income. Thinking about these important issues early can help you plan for the unexpected - could your partner manage your mortgage repayments on their own, or maintain your hire purchase payments?
If something serious occurs, an emergency fund may not be enough so it’s worth weighing up the benefits of personal insurances such as life, income protection or business insurance with your loved ones and adult dependents. Protecting your assets is also important - home and contents insurance, vehicle insurance and even health insurance are good to look into to protect you for the future.
Do your homework and shop around. The insurance industry is a competitive one, and some insurance companies offer tailored, more relevant policies for younger people.
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