Hey, it's Kia, and welcome back to A Little Bit Richer. Okay, cast your mind back. We all remember starting that first full- time job, getting excited to get paid, and then come payday, wondering where the hell a third of our money had gone. The answers all lie in your payslip and I want to make that little bit of paper make sense. How hard can it be? Asesh Sarkar is going to join me to help rip apart
those payslips. Not literally. They're mostly digital now anyway. Anyway, Asesh is the global CEO and co- founder of Salary Finance, a leading employee financial wellness platform. He's also the chair of trustees of MyBnk, which runs financial education programs for five to 25 year olds. He knows his stuff. Asesh, let's start with the basics. You get your payslip and
there's a lot of deductions. What are the main ones and what are they for?
So if we take it right from the beginning, so you get your payslip, a recent survey showed that one in four people don't actually look at their payslip, and another one in four people do look at it but don't really understand it. So one in two people aren't really getting much value from their payslip. So a payslip I think of a little bit as a book or a story. A story has a beginning, it has a middle,
and it has an end. And so on every payslip you have a beginning, which is your gross pay. And what that means is that's the amount of money you earn, the top line. So if you work, if you're hourly paid, and let's say you earn 10 pounds an hour, if in the month you've done 10 hours, then your gross pay is a £ 100 for that month. Or if you get a salary and let's say you earn £ 12,000, £ 1000 a month, then
your gross pay is £ 1000 for that month. So that's the beginning of the story. Like you say, there's deductions and other things. The middle of the story is then these deductions, so things which come out. And so there are universal deductions, things which everyone has to pay over a certain level of income, and other deductions which are specific to your employer and any benefits you may have
taken up. And then once those deductions are taken, you get to the end of the story, which is your net pay, and that is how much you take into your bank account at the end. Like with most stories, most happens in the middle, and so if I maybe pick on two of the common deductions and two of the big ones. So that's tax, one of those taxes is income tax and the other is national insurance. So
income tax is typically a big chunk. Income tax is collected by the government, or by HMRC, and they use that money for public services. So whether it's funding schools, hospitals, roads, other emerging service, that's how the country is funded. And when calculating income tax, it depends what your tax code is and how much you earn. So on your payslip you'll see a tax code, some digits, and some
letters usually. And what that tells you is what's called your personal allowance, which means how much you can earn without having to pay any tax. For most people, if you earn less than a £ 100,000, that is about £ 12,700, and so that's your tax- free amount. So if you earn under that, you don't have to pay any tax.
If you earn above that, then you are a taxpayer and then you pay one of three rates of tax, a basic amount, a higher amount, or an additional amount. That's the first chunk. The second chunk is national insurance. And so again, this goes to the government, but this money the government uses to fund, if you're ever unemployed, if you're ill, retirement, and they use this money to
fund those. As it happens, I'm going to visit my mom later, I need to take her to hospital, and so sometimes people can view deductions and taxes are negative, but equally we're fortunate to live in a country with great services, and so the money does go towards that. And national insurance is a little bit like income tax in a calculation. You have an amount of income below which
you don't have to pay anything. I think that's around again about 12, 500. If you earn below that, then you don't have to pay anything. 12,500 to around 50,000, you pay 12% of what you earn. And above 50, 000, it then drops down to 2% for that incremental income. And so they're the two big universal deductions. Overall, that's the story of a payslip.
You start with your gross pay, what comes in, you have your deductions that come out, then you have your net pay at the end.
I think that was a great breakdown. I've got a payslip here, so we have a good example to have a look at.
Good.
So you mentioned tax, so often that's referred as PAYE, in your payslip.
That's right. Yeah, pay as you earn. That's right.
Exactly.
Exactly.
So that is the tax that you mentioned first, and then we've got national insurance, which is also on there. So I think it's really good, like you said, even the tax code. I think a lot of people don't realize that the tax code is important, like you said, it denotes your personal allowance amount, but it's also important to make sure you're on the right tax code. I think that often happens to a lot
of people who move jobs. I know that happened to me when I went to one of my jobs, I was on the wrong tax code, got taxed a large amount. But it's always good to keep on top of that. That's why, if you're part of the one in two, hopefully from listening to this episode, you will change that. So you touched on the fact that there are other deductions,
so let's go into that a little bit. What other deductions could you also see on your payslip?
Yeah, so other deductions tend to be employer specific things which your employer offer, and then what you choose to take up from your employer. So one of those is pensions. Actually, all employers in the UK now offer a pension. And so if you choose to do that, then you'll see that on your payslip as well, and so that leaves your payslip and then you'll see that money
going into a pension pot somewhere. Another example is employers quite often offer employee benefit. So something like cycle to work is quite common in the UK, and so that's where essentially your company gives you a loan to buy a bike. That amount you don't have any tax on, so you're essentially saving on that a tax amount, and then you repay that with a monthly fee until the bike is
paid off. Or about 5 million employees in the UK can access what my company offers, which is called salary financing. That is if you take a loan, we can collect the repayments on payroll to allow you to get a low interest rate. Equally, we allow you to save directly from your salary as well. And there are a host of other things. If you have any student loans, that could
come off it as well. But it is always really worth taking a look at that deductions line, whether it's tax, whether it's something else, just to make sure you are not overpaying, because these things happen every payslip and if you are overpaying even a little bit every payslip, then it can start to add up.
Exactly, exactly that. So I think when it comes to talking about our money and having a look and seeing how much money we've got, I find that payday is a really good day to budget. That's definitely what I do anyway with my money. So it's a good time to put away money into different pots, whether it's going out, saving money,
all those kinds of things. And bills. Do you have any advice for our listeners when it comes to budgeting and almost the best practices for that?
Yeah, sure. So I think it's important to remember the world we live in is a world in which billions of pounds is spent enticing us to spend our money.
And unfortunately, to live in a great world where there's pretty cool things to buy, endless very cool things to buy, and so every day you're being enticed, whether it's you are watching a Reel, watching TV, you're on your computer looking at an ad, everything you look, whether it's people talking, there is just this constant opportunity to buy
very cool things. Like I say, unless you budget and unless you take the time to budget, you'll just continually spend, and then are out of control of your finances
and it becomes quite challenging. I think the process of budgeting is really important, and like you say, the payday is a really good time to reflect on how the last month has gone, or whatever frequency you get paid on, and then what you want to do in the next month as well. Personally, I was born in a city, not a huge amount of wealth. My parents are first generation
migrants. I've done reasonably well, and so I have more money now. So I've seen people across the income spectrum and it's definitely not the case that money equals happiness. You could be happy with any level of money. But what tends to be the case is if you are in control of your finances, you do have a level of peace and a level of happiness. And if you're not in control, no matter how much money you have,
you don't have that. So always recommend, regardless of your income and your position, being in control is independent of that. And so in terms of (inaudible) , a lot of financial planners recommends, which makes a lot of sense, I follow as well, if you look at your expenses
and your budget, you put it into three categories. Things you have to spend, you need to spend, and so you need a roof over your head, you need food, you need to pay your bills. There's then things you want. And so maybe you like some nice clothes, you've got a nice holiday, that's fine as well. And then there's also saving for your goals, because as you get older, you are going to want to progress in life.
You are going to want to deposit on a house and other things. And the general rule of thumb is that you have 50% of your income which goes on your needs. You have 30% of your income which goes on your wants, and that's quite a decent amount on things which you enjoy. And 20% on your future goals to allow you to be progressing in life as well.
And then different people have different preferences and you can allocate, but just being thoughtful about that, I think, is quite helpful. It just allows you to have some balance.
No, I agree. I think it's good to have a baseline. I think sometimes if you are coming to it for the first time, you don't know where to start. I think it is good to, like you say, put it down 50, 30, 20. It's a good way to look at your money. But right now where we are, for many of us, especially at the moment, it's a struggle to make ends meet. And with the money that's left over in
deductions, it can be a bit hard. So it's time for the question I'm asking everyone, you've got your pay, money's in your account, but what are the three things that you can do to try and get yourself a little bit richer?
So number one is budgeting. Really important. Very few people do it. Life is definitely very tough at the moment. It gets even harder without a budget. So I think number one is you're looking at your expenses, categorize them, and just making sure you're more going to make sense. Number two is
pay yourself first. And so rather than saving at the end of the month in case there's any money left over, save at the beginning and let the rest of
your pay cover your expenses. And number three, employers offer really great benefits, discounts sometimes, whether it's a loan or savings direct from your salary, it's really worth taking maximum advantage of that because whilst we're all one person, the benefit of an employer is they have lots of people working there so they can negotiate better rates and you
may as well take advantage of it. So I think definitely have a budget say first to give yourself a buffer, and then to take advantage of all of the benefits your employer has.
That's some amazing tips and I completely agree, especially on the employer element, because I've definitely managed to get some good tickets to go to the theme parks, with a good discount.
Absolutely.
But to Asesh, thank you so much. You have given so much insightful knowledge to our listeners, so thank you for coming on.
Thank you for having me.
Now then, you heard Asesh and I chatting about pensions, student loans and all that stuff, but we're on a clock and I know you're busy. These episodes have to be short. So I'm going to dig deeper into all of this. Episode three is about pensions. It's easy to think that they're only for people in their late thirties, but that couldn't be further from the truth. You'll see.
In the meantime, if you're enjoying the podcast, hit follow and tell your friends. It's two things that will really help. Okay, next week, pensions. See you later.