The joy of having a job may be short-lived when an SMS on payday shows that what has been paid into your account is very different to what you expected.
Take a step back. When negotiating your first cost-to-company (CTC) salary package, make sure you understand the difference between CTC and net income, what benefits you do or don’t have and the deductions that will come off your salary.
Janet Hugo, 2018 Financial Planner of the Year, says CTC is the total amount of money your employer spends on you in a year.
The amount it spends on you could include some or all of the following: Your salary
A 13th cheque
Contributions to a retirement fund on your behalf
Contributions to a medical scheme on your behalf
Group life cover which you enjoy without having to undergo medical tests or filling in questionnaires
Life cover beyond group life cover on an individual basis with medical tests and questionnaires
Income protection premiums
Lump-sum disability premiums
A travel allowance
A company vehicle
Bulk-bought insurance for your vehicle
Bulk-bought private insurance
Accident insurance
Life assurance that pays out if your spouse dies
Your total CTC package will also include amounts that are deducted for pay-as-you-earn tax (PAYE); what you are paid when you are on leave; and may include amounts allocated to an annual bonus, André Lindeque, consultant at wealth and financial advisory firm GTC, says.
Christine Marincowitz, a spokesperson and head of investor relations at financial services company Ecsponent, says that while you must know what you are getting in your pocket at the end of the month before accepting a job, understanding your total CTC before you accept a new job is just as important. “Don’t just be swayed by the bottom line number, as you might be cheating yourself by choosing short-term gains over long-term benefits,” she says.
For example, if company A offers a net monthly salary, after tax, of R20,991 and company B R20,683, then company A will give you about R300 a month more in your pocket. However, if company A offers no benefits the offer translates into a CTC of about R300,000 a year.
Company B on the other hand, contributes 10% of the basic earnings to a retirement fund, which is tax deductible. “So, while you are receiving a few hundred rand less in your pocket, this offer’s CTC is moer than R313,000 a year, or more than R1,000 per month higher than the offer from company A.”
This means you are contributing more than R2,300 a month to a retirement fund and paying almost R1,000 less in tax each month. After 20 or 30 years, the retirement fund contribution can grow to an attractive investment by retirement.
The experts all agree that the best way to understand your CTC offer and the deductions before you accept an offer is to ask the company HR representative for a mock payslip that shows the benefits, contributions and net pay.
Lindeque says it is as important to understand what is not included in your salary package as it is to understand what is included.
Tips to stretch your dough
Lindeque provides some useful tips to stretch your money as far as possible when starting out in your first job. Live with your parents or other family members for as long as possible.
Share accommodation for the first few years. “If you cannot live with your parents or family, the next best option is to share accommodation with other people, perhaps until you can afford a small place of your own.”
Set financial goals: “Set yourself a goal of going on holiday, or buying a car — this will enable you to work towards something tangible, and it makes sacrifices easier.”
Don’t splurge all your discretionary income: “It is tempting to buy the fancy car you have always dreamed of when you start working, but the novelty eventually wears off, while the payments stay with you. If you have to purchase a vehicle, opt for something modest and practical while you are young.”
Invest and save from a young age. “This can be investing towards your retirement, or saving towards buying a property, even if you will lease the property. This is one of the best ways to compound your savings.”
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