Your salary is not your money. On a £28,000 job with a Plan 2 student loan and the minimum pension contribution, roughly £1,850 a month actually arrives. Student loan repayments start only once you earn above your plan’s threshold, and they come out automatically. Your workplace pension will enrol you at a total of 8% of a band of your earnings, of which 3% is your employer’s money — opting out to boost your take-home is almost always a bad trade.
The number in the offer letter is not the number
The first payslip is where most people discover the gap. A £28,000 salary is £2,333 a month gross and nothing like that in practice, because four things come off before it reaches you.
Notice the student loan line. At £28,000 on Plan 2 you repay nothing, because the threshold is £29,385. That surprises people in both directions — some expect to be paying and are not, others get a pay rise and cannot work out why less of it arrived.
Student loans: the part nobody explains
A UK student loan does not behave like a debt. It behaves like a tax that switches on above a threshold and switches off after a period of years, and understanding that changes what you should do about it.
| Plan | Who is on it | Threshold | Rate |
|---|---|---|---|
| Plan 1 | Started before September 2012 in England or Wales, or Northern Ireland | £26,900 | 9% |
| Plan 2 | Started September 2012 to July 2023, England or Wales | £29,385 | 9% |
| Plan 4 | Scotland | £33,795 | 9% |
| Plan 5 | Started August 2023 or later, England | £25,000 | 9% |
| Postgraduate | Master’s or doctoral loan, on top of any of the above | £21,000 | 6% |
Three things follow from this that are worth internalising early.
You only repay on income above the threshold. On Plan 5 at £30,000, you repay 9% of £5,000, which is £450 a year, not 9% of £30,000. The repayment is taken automatically through PAYE.
The balance is mostly irrelevant. What you repay each month depends on your income, not on how much you borrowed. Watching the balance grow with interest is unpleasant and, for most graduates, not the number that determines anything.
Overpaying voluntarily is usually a mistake. Loans are written off after a set period, and a large proportion of graduates never repay the full amount. Voluntarily overpaying only helps if you would otherwise clear the whole balance before write-off — which typically means high earnings for most of your career. For nearly everyone else, that money does more good in a pension, a Lifetime ISA or an emergency fund. If you are unsure where you fall, that is a reasonable question for a qualified adviser.
An undergraduate loan and a postgraduate loan run simultaneously and separately. Above both thresholds you lose 15p of every extra pound before income tax and National Insurance, which makes a pay rise worth noticeably less than the headline. Worth knowing before you negotiate.
Your pension: do not opt out
You will be automatically enrolled into a workplace pension. The legal minimum is a total contribution of 8% of a band of your earnings, made up of at least 3% from your employer and 5% from you. Many employers pay more than the minimum, and some match additional contributions.
Opting out raises your take-home pay by a few percent and costs you your employer’s contribution entirely. That is a straight pay cut you have volunteered for, in exchange for money you get now instead of money that has forty years to compound. There are circumstances where it is defensible — genuine hardship, or clearing debt at a punitive rate — but “I would rather have the cash” is not one of them.
Two things worth checking in your first month: whether your employer matches contributions above the minimum, because unmatched money left on the table is the most expensive mistake available to you; and whether the scheme runs on salary sacrifice, which also saves National Insurance. The salary sacrifice calculator shows what that is worth.
Check your tax code
New starters are often put on an emergency tax code, which can mean paying too much for the first month or two. The standard code for 2026/27 is 1257L, reflecting the £12,570 personal allowance. Emergency codes look like 1257L W1, 1257L M1 or 1257L X.
If yours is not right, HMRC usually corrects it once your employer submits the first full payment, and any overpayment comes back automatically through your pay. If it has not sorted itself out after two payslips, contact HMRC — the money is yours and the fix is routine. Handing in a P45 promptly, or completing the starter checklist accurately, prevents most of it.
What to do on the first payday
The first salary is the one moment when no habits exist yet, which makes it far easier to set them than to change them later. Three things are worth doing before the money has a chance to settle.
Work out what is actually spare
Take your take-home figure and subtract everything committed: rent, bills, travel, food, phone, minimum debt payments. The number left is the only part you are really deciding about, and it is usually smaller than it feels on payday.
Move savings out the same day
Standing order to a separate savings account, dated the day after payday. Money that never lands in your current account does not get spent from it, and starting at 10% of the spare amount is infinitely better than starting at 0% and intending to increase it.
Spend the rest without guilt
This is the part most advice skips. If savings have already gone and the bills are covered, whatever remains is genuinely yours. A plan that requires you to feel bad about every coffee will not survive to month four.
The first target worth aiming at is an emergency fund covering three months of essential costs. On a first salary that will take a while, and the point is less the destination than establishing that money leaves for savings before it leaves for anything else. Our emergency fund calculator will tell you how long it takes at whatever rate you can manage.
The expensive mistakes of the first two years
- Letting spending rise to meet the salary immediately. The habits set in the first year tend to persist. Someone who saves 10% from month one and someone who starts three years later end up in very different places for reasons that have nothing to do with income.
- Opting out of the pension. Covered above, and worth repeating because it is the single most common and most expensive early decision.
- Using an overdraft as a buffer. A graduate overdraft that was interest-free at university usually is not once you leave. Check the terms and the date they change.
- Buying a car on finance in year one. Not always wrong, but it converts a large slice of a modest salary into a fixed monthly commitment before you know what your actual cost of living is.
- Ignoring the payslip. Wrong tax code, wrong pension rate, wrong student loan plan. All are common, all are fixable, and none get fixed if nobody looks.
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earmarkIQ is a UK personal finance app for iOS and the web. It is an FCA Appointed Representative of Finexer Ltd (FRN 925695) and ICO registered (CSN2001882). It connects to UK bank accounts through read-only Open Banking, categorises spending automatically, builds a payday allocation plan, and tracks subscriptions, property equity and net worth. Website: earmarkiq.app