How to get smart with money if you’re a school leaver
So you’ve left school and you’re looking to start your apprenticeship! Welcome to the world of work, it’s exciting, new and there is so much to learn.
When you receive your pay you may see some unexpected deductions in your payslip, these could include income tax and national insurance, which are deductions made by the government to run the country.
You are able to earn £1,041pm (£12,500 a year) without paying income tax. However, if you earn more than £719pm (£8,632 a year) you will pay national insurance, a tax by a different name. This is charged at 12% of your income between £719pm and £4,168pm (if you’re that lucky!). Earnings over this, will attract national insurance at 2%.
Here’s a summary table;
|Income per month||Tax and National Insurance||How much of £100 you keep|
|Earning up to £719pm||Nil||£100|
You may have heard that the government cut national insurance for apprentices under 25, from April 2016. This is true however this will only apply to the employers’ national insurance payments, not yours. You can read more about it in this Government notice.
Now you’re earning, you may start spending more than you were previously, it’s important you manage your money correctly, or you will easily get yourself into debt.
Adopting my Bank Account System will help you to manage your money better
I developed The Bank Account System as a way of helping people manage their banking. It works by having two bank accounts, one for all of your regular bills such your rent, mobile phone contract and your memberships etc., arrange for your income to be paid into this account, your income may only be from your employer, but if you also receive any support payments or ‘side-hustles’ also use this account.
Then, every week on a Wednesday pay yourself a fixed allowance into another account, this is your weekly allowance or your spending money and is what you use for all, and I mean all, of your variable weekly spending such as travel, eating out and socialising. When it’s gone, it’s gone, but don’t worry, you won’t miss out on too much as you’ll be paid again on the following Wednesday, from your Bills Account.
Remember to plan ahead for your weekly travel and other commitments this is all about managing your money sensibly and making wise financial decisions.
It’s essential that all of your expenditure in your Bills Account is less than your income you can use the worksheet on my website warrenshute.com if it helps.
Saving money the smart way
I recommend everyone saves for their future, and the best time to start is now! It’ll be easier for you to save now, than when you’re in your 40’s, trust me on this. You’ll never feel you have enough money spare and 12.5% of £100pm is easier to put aside than 12.5% of £5000pm.
I want you to save 12.5% of your income, this is the same as you saving the first working hour of an eight hour working day. When you go into work, this first hour you save for your future, then the next couple of hours may be for your tax, then by lunch time it’s to cover your other bills.
Set yourself a goal to save £1000 into Premium Bonds as quickly as you can, then up this amount to three months of your income. Trust me, when you do this, everyone will be impressed, and you’ll be on your way to be the next Warren Buffett!
If you’re under the age of 22, you won’t be automatically enrolled into your employer’s workplace pension scheme along with your older colleagues.
But provided you earn £511.33pm (£6,136pa or more), you have the right to opt in to the scheme.
If you do, your employer will have to contribute to your pension in the same way as for anyone who’s been automatically enrolled.
If you earn less than £511.33pm (£6,136pa), your employer has to give you access to a pension to save into if you ask them to and has to make arrangements for you to join, but they’re not required to contribute to it.
Pension planning isn’t just for older people.. starting early means you could have a £1 million pension fund
Starting to save into a pension is probably the most financially intelligent move you can make, your 50 year old self will thank you.
If you save £1 per day from 17 to your retirement at say 67 and kept these payments rising with inflation, you could have a pot worth over £300,000 assuming a return of 7%pa. This is roughly 10x the average pension fund size!
But what’s great is that when your employer also contributes, and when you earn a little more you pay more, you could reasonably be aiming towards a pension fund of £500,000 or even a £1,000,000!