23 January 2015

Getting ready for your first payday

Depending on your employer, you’ll either be paid every week, fortnight or month. As well as your wages, which are normally deposited straight into your current account, you’ll receive a payslip detailing what you’ve earned.

While it can be tempting to look straight at the bottom right-hand corner at your net pay (the sum which you will actually receive) you shouldn’t ignore the rest of the information. Firstly, check out the payments box which should detail either your monthly salary or your hourly rate, as well as the number of hours you've worked. It’s important to check that this tallies with what you expected. If you have any queries, check with your employer.

The amount listed in the payments box may be significantly higher than your net pay; this is because a number of deductions are made. These should be listed in a separate box and may include:

  • National Insurance: You pay National Insurance to entitle you to certain state benefits. It will be deducted straight from your wages by your HR department
  • Income Tax: This is deducted straight from your wages via the PAYE (Pay As You Earn) system. How much you pay will depend on your Personal Tax Allowance and how much you earn. The Personal Allowance currently stands at £10,000 a year for almost everybody, so unless you've earned this amount, you may not have to pay income tax. Visit the HMRC for more on your personal allowance
  • Pension contributions: Even if you've not chosen to join an occupational pension scheme, you may have been auto-enrolled
  • Student loan: Loan payments are automatically deducted from your salary when your earnings reach a certain level. You can find out when you'll start repaying your student loan here
  • Other deductions such as union fees, charity donations, club fees etc.

Another important detail to check is your tax code, which is usually made up of several numbers and letters. It tells your employer how much tax to deduct from your pay. If your tax code is wrong you could either overpay (and be entitled to a rebate in the future) or underpay and be faced with an unexpected bill further down the line. 

If your tax code is 1000L,1000L W1, 1000L M1 or 1000L X, check whether you've been put on the emergency tax code. This often happens when you start a new job and your employer is waiting for HMRC (Her Majesty’s Revenue & Customs – otherwise known as the tax office) to send them the correct code. Emergency tax won’t take into account any allowances or reliefs you're entitled to, other than the Personal Allowance, so you could end up paying a chunk more than you're meant to. 

You can normally be moved to a more suitable code quite quickly by providing a bit more information about your income for the current tax year. But remember, 1000L is also the tax code you'll have if you're only entitled to the basic Personal Allowance. Visit the HMRC for more information on emergency tax codes.

Managing your money

It can be tempting to blow your first pay on treats – after all, you’ve earned it. But by getting into good financial habits from the start, you can help ensure your money lasts from one payday to the next. You may even be able to build up a healthy rainy day fund.

Top tips for managing your money:

  • Set up a current account: If you haven’t already, set up a current account. There are lots of different types on the market, and the type you choose should depend on what you want from an account and the way you spend. Check out our ‘How to choose a bank account’ guide for more information or take look at Nationwide's current account range to see if we can help.

  • Move your direct debits: If you have any bills coming out of your current account, see if you can change the date they come out after payday; that way you’ll know how much you have left to spend.

  • Set up a savings standing order: Similarly, if you’d like to put some cash aside for a rainy day, why not set up a standing order to move some money from your current account to your savings each month? 

  • Set up online and mobile banking: It’s important to keep an eye on your bank balance, especially when you're just getting used to having some incoming money. Don’t wait for your monthly statement- sign up to online and mobile banking and you can check you're in credit on the go.

  • Work out a budget: Once you know how much you're earning, you can work out a budget for yourself. Make a list of all your essential outgoings including bills, food, fuel etc and work out what you’ll have left once they’ve been paid for. You may even want to have two current accounts; one for bills and other essentials, and one for spending money.

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