Close to half of people who earn salaries are left with less than R1,000 and have negative balances when their payday rolls around.
This is according to Standard Bank who analysed data from more than 402,000 individuals who get paid mid-month, the 25th, and month-end.
Standard Bank has revealed that the day before payday, 21% had R1,000 or less, 28% had negative balances or were using overdrafts and only half had more than R1,000 in their bank accounts.
Emerging middle-income earners were the highest percentage of customers with less than R1,000 or in the red, however, private banking customers are not exempt either, with one in ten customers having a negative balance before payday.
Kabelo Makeke, head of Personal & Private Banking, Standard Bank South Africa said that this trend may also be influenced by the increasing availability of overdraft facilities.
“Many customers hold accounts with multiple banks, which can lead to misinterpretations of their financial health,” Makeke said.
“They may be transferring funds to savings accounts elsewhere closer to payday, demonstrating a potential for better financial management.”
Customers are really living with no financial cushioning because they spend large portions of their monthly income early in the month which means that they have little left over to cover unexpected expenses.
Makeke said that while this insights might be discouraging, there are effective strategies to help manage finances better.
“This situation highlights the growing challenge of balancing income with lifestyle in today’s fast-paced world. However, it also presents an opportunity for individuals to take proactive steps toward financial resilience,” Makeke said..
Closing the salary-lifestyle gap
While high-income earners often enjoy greater disposable income, the findings from Standard Bank show they are also more susceptible to negative balances.
This raises awareness about lifestyle inflation, a phenomenon where rising incomes lead to higher spending that often more than earnings.
“As incomes rise, it’s easy to fall into the trap of spending more, which can create a cycle of debt. However, breaking this cycle is possible,” Makeke said.
Managing your salary
According to Charnel Collins, CEO, National Debt Advisors, earning your first salary is a memorable but without proper financial management it can also easily run out before your next paycheck.
Here are five tips to help you manage your salary.
Emergency fund
Having some money set aside in an emergency fund for unexpected situations will leave you in a better position than if you had to get in to debt by borrowing cash when you need it.
It is recommended that you have three to six months’ worth of expenses saved up in an emergency fund.
Start a budget
Drawing up a budget is the first thing that you should be doing before you start paying off your bills or buying groceries for your home.
If you are having trouble with getting started on your budget then you can use these budgeting methods to make the process easier.
70/20/10
With this budgeting method, you need to separate your salary into three groups where: 70% of your income goes to living expenses, 20% to debt payments and 10% to savings.
80/20
Another budgeting method is the 80/20 method, where you separate your salary into two separate groups. People need to separate: 80% of your income for needs, wants and debts while 20% is strictly allocated for savings.
50/30/20
With this method, you should put away: 50% of your salary to needs like rent, groceries, and utilities, 30% to wants such as hobbies, holidays, and eating out and 20% to your savings.
Savings fund
Start your savings fund by having a goal in mind. You can choose to have a long-term savings goal, a short-term savings goal, or both.
An example of a long-term savings goal is a down payment on a house or a car, while a short-term savings goal could be a holiday for your birthday or new furniture for your home.
Having a goal in mind will help you stick to the process of saving and keep you motivated to put some money away every month until you reach your savings goal.
Income protection
Janine Horn, financial adviser at Momentum said that income protection is necessary to help people protect their ability to earn an income. With income disability protection, your income is assured if for some reason you are unable to work.
“Income protection can be up to 75% of your net income and you are protected up to age 70 and sometimes for the rest of your life,” Horn said
Get help
A financial adviser can steer you to wealth, and help you make the best investments decisions so you can become financially stable in life.
An adviser can offer you guidance on how to invest your money, they can offer you advice on your long-term investments and finally they can help you get the best possible retirement saving strategy to secure your financial future.
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