What to do with your first salary

Why I am writing this post? Well, to be honest, this budget stuff gets me going. My motivation is simply that I really like it. Is that okay? If you really like to bake then maybe you just find yourself hoping to run into a friend who you know will enjoy a conversation about baking. Later on you'll take these new ideas into the kitchen and whip up a muffin batch that could bring the king of Persia to his knees. No one asked you to, but you just wanted to because you love it. Good for you. So that's how I feel about money.

Now that I have received a few salary cheques in my life I can look back and ask, "What if..."

Never do that if you are emotionally unstable. I am not asking this question with tears in my eyes. I am looking back at my education, which has been by experience, and wondering how it would have played out if I had the education before I had the experience.

Back to the story. A lot of money has flowed through my bank account over the years and, even though I consider myself a rather financially savvy individual, I wonder if I really did the best that I could with this particular resource. I'm not talking about being entrepeneurial and that I should have invested it in the next Google, but simply looking after money then the way that I am looking after it now. 

By going through my failures and successes; maybe it'll help you or maybe you're just curious what other people do. Either way, read on and see if you can draw something from these experiences.  

To start, what did I do which was bad?

Well, I bought a car that I couldn't afford.

I needed a car, but I spent the little savings I had on a deposit and the loan I took out exceeded 50% of my annual take home pay! What a dumbass! Tip number one - don't put yourself in the hole straight off the bat. If you need a car, buy a car. But try to do it cash. If you can't do it cash, then take out a for loan less than 30% of annual income and pay the rest cash. If these parameters mean that you can't get the car, then realise that you can't get the car. Don't put yourself under that kind of pressure. Drive a scooter or take the bus, I don't care. But the fact is that if you buy things you can't afford then you are building a house on a very shaky foundation. You will only be one salary cheque away from bankruptcy every month. Don't do it. This isn't necessarily a first salary problem, but it is a mistake I made with mine and only learned later on how bad it was. By the way, to generalise, it doesn't necessarily have to be a car either.

Next up, I had no savings plan.

I did volunteer work, studied music and held odd-jobs for my first two and a half years out of university, and my first career-like job was as a maths teacher at an all-boys school. This is where I got my first real salary. It included a contribution into a retirement fund, but in the beginning I had no amount set aside each month simply for personal savings. Some months I had more and others I had less. I needed savings for many reasons. I needed to have an emergency fund in case the S hit the F. I could have started to put money away into unit trusts (which I now love). I didn't save for holidays, car repairs or anything else. Bad move. Why? Because, inevitably, S is always being flung at F, and it happens. I had to fix things I didn't expect needed fixing. I made plans for holidays but needed to come up with the cash from somewhere. I needed clothes when I realised I was inches away from people handing me a sandwhich when I walked down the street. I fell in love and proposed to the girl of my dreams and then had to magically make wedding money appear! 

Strangely, I found the money... most of the time. Luck? Not really. The real way to look at it is that I lost money to other things that for the life of me I cannot recall. When I realised I needed money for these things, I started to get my financial house in order and take control of money that was being lost. So from there comes tip number two - don't wait for your first flat tyre to make you aware that you need to have a spare at all times.... 

What did I do with my young salary that was good?

Like I mentioned, I'm not a total idiot when it comes to money. I'm a quick learner and soon realised that plans needed to be made. Here be tip number three. Learn. Once I realised debt was way too easy to get in to, I made sure I stayed as far away as possible. I had opened some clothing accounts, thinking it would help me build up a credit record. Once I realised I was buying things with money that I don't have (even at zero percent interest), I made sure to pay what I owe and cancel the accounts. I started to build up savings in a different account that was hard for me to access once funds were put away. This eventually helped me pay for our wedding and honeymoon without having to sell anything on the black market. 

What did I do with my salary that was grey?

I spent it on travel. But not any kind of travel. The girl of my dreams was a good eight hour drive away, and trying to make a long distance relationship work takes more than love. It also takes money. Why do I call it grey? I need to explain this, especially if my now wife reads this posts and wonders why I didn't call it the best thing I ever did with my money. The reason it's grey is simply because a relationship should be a great thing to spend money on but we could have done it better. In the beginning the travel and our time together swallowed so much of our money and we failed to plan completely on how to manage it. Only a few months down the line did we come up with a plan and a budget. The budget was built on how long we could go without seeing each other without going nuts. If we were apart for too long we discovered that our relationship took strain. The key period decided upon was three weeks. Once that was in place we could start planning far ahead and budgeting accordingly. Words of wisdom tip number four - invest in good relationships with your money, but do it wisely. Don't buy love, but take it out to dinner from time to time and let it know you're not reckless. Chicks dig stability.

What would I go back and change if I could?

I wish I had bought a cheaper car. It would have taken a lot of pressure off of the next few years and I would have had much more wiggle room in my wallet and a lot less stress.

I wish had started investing earlier. Few things to me are more exciting than putting money away and watching it grow. Investing in Unit Trusts are incredibly easy. I was stupid enough to try and buy my own shares and speculate with very unstable financial products long before I thought of putting funds in an account for long-term investing. We need a good saving habit almost as much as we need a hate for being in debt. Saving about 10% of your salary every month should not be hard. If it is then you either need a bigger income or you need a better budget. 

At the moment I have three main accounts. I have a extra-budget account, or an emergency fund as it is more commonly known. This is slowly built up to look after the things that I can't fit into our monthly budget. The second account is my bank account in which I only leave enough money every month to fund a well-planned budget. The third an last account is a Unit Trust account where I try and build up money for a house deposit and for our retirement. I wish they would teach these three accounts as a rule when you start to work and earn! It's not fool-proof but it has made my life SO much more manageable! Damn son, I actually think I'll write a post just on these three and why I have decided to live on them and them alone. 

Lastly I wish I wish I had won the lottery. Can't win if you don't play right? Okay that's a joke. I am not advocating stupid tax here. My point is made with sarcasm, and it is this; there are better things than winning the lottery. Not needing to win it. I wish I had a money mindset instead of a poverty one. This was something I identified early on and then took to change immediately. I am no longer money's angry jealous cousin but I feel like money is a good and trustworthy employee, doing what I want it to do.

Am I stinkin' rich? Hells no! I am not a millionaire, but I do think I will be some day. Is it because I am earning bajillions per year? Hells no again! It's because I've watch small amounts grow into bigger amounts, encouraging me to make to smaller amounts bigger so that the bigger amounts can get even bigger! Well, how do you make smaller amounts bigger? For starters, try and pay yourself what you are now paying the bank! One of my first goals was to replace my debts payments with Unit Trust payments. Works wonders I tell you! Don't pay off one debt and then think you can now afford another! 

So getting practical. 

Get the salary. Don't rush into anything. Look at what you earn every month and what you need to get by. Assess whether this salary is matching your living standard. Should you scale down or are you getting by comfortably? Make a budget that comes to less than you earn. Make sure to include medical aid (even if it's just a hospital plan) and car insurance into that budget. Why? Because as much as it sucks, something can happen with in either of those areas that could take to you right down to square one, or God forbid, even lower. Avoid debt. If you already have debt, made it your first goal to get rid of it as soon as you can. Put some money out of reach to fund things that won't fit into the budget (5% or more of your monthly salary, plus whatever extra pops up). Do this until your emergency funds eventually sits at about 3 months worth of expenses. Start replacing the money you would throw at debt to long-term savings. Try and see if you can get this up to about 15-20% of your monthly income, so that eventually what you have put away can replace your incomes in the golden years. Be disciplined and don't touch these funds. If an emergency comes around you'll have your emergency savings. The long-term savings can only be for a house deposit and act as a supplement to your retirement. Don't feel pressured for household insurance if the most expensive thing you own is a waffle machine. Don't pick life insurance if you are young and you don't have any dependants. Don't take out a retirement annuity yet if you aren't sure which country you'll be retiring in (rather put these funds in the third account for now). Don't be a scrooge and forget to have fun within your means. You only live once so make it good, but do it wisely so that you make the goodness last.

Freelance living

I am listening to a great audiobook at the moment, Quitter by Jon Acuff.

For those who know his story, can I please say that I started blogging before I got this book. I hope this makes me look less lame.

There are many awesome pieces of wisdom in his book, carried across in a relaxing conversational style. Only one of these nuggets I want to write about today and expand on slightly.

Jon discusses his previous job before his dream job and starts talking about how he was stealing from work when it came to work hours. His employers paid him to work for a certain amount of time but his blogging ended  up leaking into his work time. Excuses like 'I can do the work they need me to do in less time' and 'my real passion is the one that's more important' both rob your employer of funds that they are spending on you per hour. If we were the employer it would be very easy for us to agree that those reasons are total BS.

I started thinking about what my employer pays me to do and my attitude towards it.

Let me give you some background into what I do for a living. I work at a company that buys foreign money from partner banks at lower margins. You might not know this, but depending on where you live and which bank you use, you're not getting the same rate as on the TV or radio for the forex you buy when you travel, pay invoices or emigrate. This is why there is a market for our company. I run the corporate dealing desk, making me in charge of the margins and profitability of this side of the business.

My day consists being available for my clients and staying in touch with them about their FX requirements. When they have to buy some USD, CAD, GBP, or whatever currency they might need, then I would give them a price and send them the invoice for it. Viola! Money in the bank! Literally!

...Unfortunately it's not that simple. I won't bore you with the details but the description above is the basic premise of our business.

The part where Jon's wisdom comes in to challenge me is that I feel like there definitely are times that I do things that are not what my business pays me for. I might end up doing things like trying to help a client with a query that someone else in the business is much better suited to. Or using company time to look at watches I want for my birthday. Or trying to position myself in a way that would make me do less of what I am paid to do and more of what I want to do.

The last point is probably the most relevant. You see, I really want to spend more time on niche clients and do analysis on their business and their needs. I want to work on products that we don't have yet and would set myself up to be too good for the job that I am doing now. It's quite natural I guess.We always want to be pushing ourselves forward. But I still feel like my approach could be different in this regard. I have a feeling that I could make more time to do the basics things that I was employed to do in the first place and be more effective in the way that my performance is measured at the end of the day.

Jon's solution to this problem is to think of our employer as a client and our salary as billable hours. We wouldn't dream of billing a client that we were doing freelance work for for hours that we spent doing something outside our mandate. The same should go for work.

My thoughts drifted to the other areas of life. At the end of the day I felt like it was a question of resources. One party had spent spent some of their resources on another with a specific expectation or outcome in mind. The second party received resources on the premise that they provide a certain return.

Consider algebraically that the two parties and the resources are interchangeable with different elements of a persons life. I am the employer who engages my resource of time with my friend whom I expect to provide me with the outcome of a friendship and increased trust. If my friend takes my resource and gives me something less than what I expected then I would feel like my resource could perhaps have been spent better on something else. Perhaps another friend that would have got the job done. Wow. It's an incredibly robotic view of people, but are our basic needs that much more complicated?

What are my resources? Time, money, emotion, energy. What do I spend them on? What am I getting for it? What resources are others spending on me? Am I getting a good deal on what I am spending or am I being short-changed? Am I a good employee when it comes to what others spend on me? 

Makes you feel like making a list doesn't it?