Making the jump from being a student to taking your first step on the career ladder is exciting – but can also feel daunting at times.
As well as finally being able to unleash your own own work life ambitions, there will be things like tax as well as workplace benefits and pensions to get to grips with.
“For some, it can mean the first time they are having to manage their own money,” says Jonathan Watts-Lay, director at financial wellbeing and retirement specialist WEALTH at work. “It is important young people are taught about budgeting, savings and responsible borrowing, so they take control of their finances.
“Anyone starting a new job should speak to their employer to find out what benefits are available, and sign up if they are offering financial education,” he adds. “It could be one of the best financial decisions they ever make.”
To give new starters in the workplace a helping hand, here are some suggestions…
1. Make sense of payslips
For those starting out in the workplace, the first payslip can be very confusing. A payslip contains important information, including someone’s payroll number, gross income (the income before any taxes and deductions, such as pensions and student loan repayments, have been taken) and net pay (what’s left after deductions have been taken), and usually a tax code.
“It’s important to get to grips with what deductions will be made to understand how much income will be left each month,” says Watts-Lay.
2. Get to grips with tax
Personal allowance is the amount of money that someone can earn in each tax year before they start paying income tax. The standard personal allowance is currently set at £12,570. More information about income tax rates and bands can be found at gov.uk/income-tax-rates.
“It’s important for people to check they are on the right tax code and paying the correct amount of income tax,” says Watts-Lay.
Your employer may also need to know your national insurance (NI) number. This number makes sure your NI contributions and tax are recorded against your name only and it remains the same for life.
3. Make the most of pensions
Under automatic enrolment, employers must place their workers into a workplace pension, if they satisfy age and earnings criteria. The earnings “trigger” for automatic enrolment is £10,000.
Employees aged between 22 and state pension age who are earning at least £10,000 annually from a single job are generally automatically placed in schemes. Currently, UK employers are required to make a 3% minimum contribution, with employees making up 5%, to bring the total minimum pension contribution to 8%.
Watts-Lay says some employers will pay more than the minimum pension contribution rates. He also points out the tax advantages of pension contributions, adding: “Employers who offer a salary sacrifice arrangement are also able to save employees national insurance costs on their contributions.”
The earlier someone starts saving into a pension or other savings, the better…
Increasing your pension contributions as and when you can afford to could also make a big difference, particularly if your employer will match this. It’s also important to understand the cost of delaying paying into a pension.
Watts-Lay says: “The earlier someone starts saving into a pension or other savings, the better, as it gives more time for the money to grow, and it also benefits from the power of compounding over the individual’s working lifetime.”
4. Check out workplace perks
“Many employers offer their staff various benefits, so it is important to know what is on offer,” adds Watts-Lay.
These can be anything from support with health and fitness, such as discounted gym memberships, health and fitness apps and devices, or discounts on shopping, support with childcare and elderly care costs and debt support.
Some of these are offered through salary sacrifice, which means it is paid through company payroll using pre-tax salary, which can offer significant savings where suitable.
Watts-Lay says some employers also offer seminars delivered by financial coaches to help when starting work right through to retirement planning, as well as access to schemes which can be used to help build financial resilience.
5. Try to build up savings
“It’s always a good idea to have a pot of money for unexpected costs and for the future,” says Watts-Lay. In addition to workplace pensions, he says ISAs another tax-efficient savings option.
There are several different types of ISA available, including cash options as well as stocks and shares ISAs for those saving for the longer term.
Watts-Lay adds: “Many workplaces offer their employees access to workplace ISAs and contributions can conveniently be taken directly from pay.”
6. Set a budget
“It’s always a good idea to create a monthly budget, so people can understand what they can afford to spend and avoid getting into debt,” says Watts-Lay. “Budgeting apps which integrate with bank accounts can be useful to build a budget in one place and give a clear overview of all accounts, including savings and show all transactions in one place, as well as how spending compares to previous months.”
You could set multiple budgets within an app – for groceries, eating out and entertainment, for example – as well as setting savings and debt repayment goals, he suggests.
7. Review your spending
“If spending is more than someone would like it to be, they may be able to reduce their costs by checking bank and payment services for recurring payments and look for ways to reduce these,” says Watts-Lay.
As well as shopping around for cheaper deals, it may also be worth considering any discount schemes offered by your workplace. Watts-Lay adds: “Many workplaces offer employee discount schemes, which can be useful for the weekly shop or big purchases, such as if a washing machine breaks, and also activities like eating out and holidays.”
