As a salary earner it?s not abnormal to look forward to payday just a week after payday. Most wonder how they get to finish their salaries as they grapple with stinging recollection of how it was spent. A lot of this anguish is due our knack for spending our salaries before they are even earned.
About 20% of your salary is deducted for statutory obligations before it is even paid to you. Deductions from other sources such as I.O.U?s, thrifts, Union dues etc are also removed from your salary before it is paid provided you are committed to them. So for a person who earns N100, 000 a month in average salary, N20, 000 could be deducted from his salary before he receives it.
It therefore becomes important for you to manage deductions from your salary that are neither statutory nor legally obligatory but used to repay expenses you already enjoyed without having to pay for them immediately. Here are some of them;
Upfront Salary? – Despite the passage of the new Tenancy Law in Lagos, it is difficult to find a landlord who is willing to accept monthly rental payment. Most still receive rent annually in contrast to tenants who mostly earn their buck monthly. Purchase of a vehicle, school fees etc also require that you make bulk payments upfront even though you enjoy the benefits over a longer period. For most people, the easiest way to fund some of these expenses is an upfront receipt of their salary. It basically involves your company paying you a large chunk of your annual salary at the beginning of the financial year and then amortizing that chunk of money monthly until it is fully paid off, helping you pay for expenses that require huge cash lay out. Upfront salary is great provided the money received is put to proper use. However, an improper utilization of the money can lead one into financial quagmire.
I knew someone who used his upfront salary for a family vacation forgetting that his children?s school fees awaits him on their arrival. Why not fund the bulk of your vacation expense via a combination of your leave allowance and salary for the month preceding the vacation.
Direct Debits – Direct debits are standing instructions given to a financial institution to deduct cash from your salary to pay for utilities that have already been enjoyed. For example, it could be for payments of Cable TV Subscriptions, Electricity bills, Water rates, tolling fares etc. Because these are essential services that you mostly depend on, you do not want the bills hitting your account without any cash available to ay for it. To therefore ensure regular service it is often advisable to place your salary on a direct debit. However, direct debits due to their frequency of occurrence, should only be for essential services which you can afford and cannot do without on a daily basis rather than for expenses that feed on your habit or insatiable desires. Some people have a direct charge on their salaries to pay for club memberships that they ordinarily cannot afford.
Credit Cards? – Credit cards are now a common feature in Nigeria giving users the opportunity to acquire goods and services and paying for it at a future date. The bank simply picks up the bill only for you while you repay periodically inclusive of interest. Due to its convenience and effectiveness it is often easy to pile up huge debts, which you may not be able to pay back when repayment is due. It is also spending your income upfront and as such should be used wisely. If you are very profligate in nature then it may be wise for you to avoid credit cards.
Contributory Schemes? – Employees of most organizations have several staff contributory schemes that involve constant monthly contribution of money by interested participants over a period. Each participant has an opportunity to receive the full contribution once in the cycle. To ensure that everyone contributes, a charge is usually placed on the staff salary at the end of the month. For those who participate in such schemes it provides them an opportunity to get a huge chunk of money upfront, which can be used for important projects. Early receivers of the upfront contributions must utilize it for very productive reason as they get to feel the pinch long after they have spent the money.
Buying things from Friends and Family– In Nigeria, it is not uncommon for colleagues to buy and sell things to each other. It?s a twin fold of earning extra income for those who sell and owning items without paying immediately for those who buy. For those who buy it?s no different from spending your salary upfront. People use it to buy dresses, jewelry, accessories, etc. Whilst this is a good idea it is also very?susceptible?to amassing debt. There are a lot of people in work places who are?notorious?for owing because they can?t repay once their salaries are paid. It is therefore important you do not buy what you cannot afford to pay.
As appeared on Punch Newspapers of January 31, 2013.