The Salary Misconception

The Salary Misconception


We carry false beliefs when it comes to our salary or paycheck.  From employed to self-employed people, young and older, there’s a way of thinking about our salaries or incomes that we need to challenge.  Here are some of those misconceptions.

Your salary is not the net amount (after tax); it is the gross amount (before tax, deductions, pension, NHIF, NSSF, loan repayments etc.).  For example if you earn Kshs 100,000, what may get paid into your account is Kshs 70,000 (assuming general tax rate of 30% and not including any other deductions for the purposes of this example). You salary and current earning power is still Kshs 100,000. According to your employer, they pay you Kshs 100,000.  However just like any other citizen of the country, you have to pay your fair share of the privilege of living here.  As much as it is your employers’ responsibility to remit these taxes, it is not their job to shield you from the taxman. You are earning Kshs 100, 000 because you are doing a job or work valued at Kshs 100,000.  Too many people try and negotiate for salaries or increments based on net positions.  Naturally because they are looking at it from a personal perspective.  What gets credited into your account is what you can plan other personal expenses with. So if you want that to change, your work has to have more value.  For example if you did want to earn a net amount of Kshs 100,000, you have to do work that is valued at Kshs 125,000 or thereabouts.  Look at it this way.  You always have a 30% shareholder in your efforts called the taxman.   This way of looking at salaries has also affected many businesses negatively.  A lot of people have found that they overpaid for certain roles because they were trying to accommodate net positions for people. As the employer remember you still have to remit the tax. The higher the next position consequently the higher the tax.   As a business you always have to plan with what that position costs the company not what somebody is being paid in net amounts.  Salaries are based on value and that should be the foundation of any discussion.

Your salary does not get increased because of your personal circumstances. Many times we tend to play the victim mentality.  People want their income increased for many reasons.  The ones that a business can listen to properly are again based on performance, responsibility, targets etc.  Your employer is not responsible for your emergencies so they cannot increase your pay because you are going through that.  This may sound harsh but your emergency has nothing to do with the core business of an organisation. This is why many companies do not give salary advances as a matter of policy.  Many people also request salary increases because expenses have gone up.  Inflation, school fees, moving to a new apartment etc. Once again, your choices on personal expenditure are your problem not your employers. They did not force you to accumulate debt or move house.  There are some companies that do an inflationary annual increase.  Good for you if you work for them. For most businesses it really is based on expected performance. Even the company itself has been affected by inflation so keep that in mind when looking for increases because of personal expenses.  You will have better traction if you keep your remuneration discussion on performance.

As a business owner, you must pay yourself a salary.  (Click to Tweet this thoughtMany entrepreneurs carry the fact that they don’t pay themselves as a badge of honour.  It is not.  If you do not pay yourself it just means you are not running a sustainable business.  You have a business that thrives on free labour i.e. you.  When you don’t pay yourself, you end up stealing from the business by taking money from it in a disorganised way.  An MPESA receipt from a client becomes the money you use to go and do personal shopping at the supermarket. Or business plans are put on hold because the money in the account was used for school fees. Also by not paying yourself you underestimate the costs needed to sustain this business. You have a target in mind that meets all your other costs – rent, salaries (for other people), suppliers, bills etc., but not you.  Had you put yourself as part of this equation, you would work towards a higher target. The myth is that you have to start by paying yourself a lot. It can start low and keep growing.  Even if you can’t implement it immediately say in a very new business, make a plan to start paying yourself in a specific time period.

Do not expect to earn the world in your first job (Click to Tweet this thoughtso you can go and acquire all the things that somebody who has been working for ten years has. Too many young people are making this very drastic mistake.  Asking for too much. Yes you have a degree but real school only starts in the workplace.  That’s why some job opportunities come with a requirement on minimum experience. That becomes the real currency that you still have to acquire.  I have seen cases of young people who have refused job offers because they are not being paid what they want.  They sit at home for one year whilst the person who took the job gets the experience and a head start. They just have an unexplained blank in their CV. This leads to our last misconception. A big salary does not make you wealthy . It is what you do with a salary whether big or small that will determine this. (Click to Tweet this thoughtWealth is what works when you are not working.  A good salary may afford you a decent lifestyle today, but if it was not there, how long can you sustain your current lifestyle. This is the time to face that calculation. That’s how wealthy (or not) you are despite the flashy lifestyle you can afford. The nice phone, nice car, nice clothes have no impact on wealth. That is the great equalizer and why someone earning a much smaller income can be wealthier then those earning a lot of money. You have to make smart choices so that this salary actually works for you.

To learn more about how to use your money as a tool to reach the heights and goals that you had only imagined, click here to learn more about the Centonomy Personal Finance program, Centonomy 101! Ready to register? Click here!

Waceke Nduati-Omanga runs programs on Personal Finance Management, Entrepreneurship and Career Success

Find her at waceken@centonomy.com| twitter @CekeNduati| Facebook /CekeNduati

 

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