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