When it comes to personal finances, most aspects are inherently shrouded in secrecy. There are things you don't discuss with anyone, from friends, family, and even colleagues. One such aspect is salaries.
The question of how much one makes often lingers in daily financial discussions. But most people rarely get into the intricacies of it out of respect for personal boundaries or fear of getting grilled back. So they tiptoe around it, as full transparency may sow seeds of distrust, breed unease, or even sprout envy.
For some, the decision to keep mum about earnings is to dodge the shame and stigma that can accompany earning less than those in their circle. Conversely, higher earners may cloak their salary to avoid overdependency or unintentional bragging.
Despite the inclination to maintain a veil of privacy around income, life will occasionally push you into situations where disclosure is unavoidable. And that prompts the question, when is it okay to reveal how much you earn? This article will discuss five instances when you might have to be transparent about how much you take home.
Lenders are required by law to evaluate your ability to repay a loan before they approve your application, and one key metric they rely on is your income. Typically, this helps them determine if you can afford to service the loan you're seeking, meet the minimum monthly repayment, and, in some cases(e.g., credit cards), determine your loan limit.
Unlike other financial details, your income isn't typically found in your credit report. As a result, lenders will ask you to disclose this information to complete their assessment. To do this, you will need to provide your most recent payslips or tax returns if you're self-employed.
However, having a high income alone doesn't guarantee loan approval. To ensure you're not overextending yourself, lenders will look at your debt-to-income (DTI) ratio to determine what percentage of your income is already used in debt servicing. Typically, lenders will require a DTI of below 36%.
If you are concerned about insufficient income or high DTI, you can enhance your loan application by offering collateral or securing a cosigner/guarantor. Finally, remember that lenders look beyond your income.
Combining finances in a relationship inevitably leads to the "salary talk." If you opt for shared finances, disclosing your income may become necessary. It lays the groundwork for envisioning financial scenarios, setting expectations, and planning your lifestyle and future.
Initiating the salary disclosure conversation with your partner requires openness and tact. Therefore, timing and mutual comfort are key. Honesty in this dialogue encourages trust, aligns expectations, and enables informed decisions about budgeting, saving, and investing together.
However, there are times when revealing your salary might not be suitable. If you're not ready due to personal reasons or the relationship is in its early stages, consider discussing broader financial goals first. This will help you understand your money attitudes and if you are "finacially compatible." As the relationship deepens, you can revisit the salary topic.
Depending on your company, when seeking a raise, you may have to reveal your income to someone, such as your company's HR.
For instance, consider the case of Edith, a 32-year-old software engineer working for a fintech startup in Kenya. Edith recently learned that she has been getting paid less than her colleagues in the same position. After researching, she discovered that her skills and experience align with a higher salary bracket.
To justify her request for more competitive compensation and start the negotiations, Edith had to reveal her salary to her firm's HR.
Apart from when seeking a raise, you might also have to reveal your salary when job hunting or when responding to offers from recruiters. The disclosure lets you articulate your expectations and build a foundation for negotiations.
When negotiating a job offer, be cautious and strategic in what you reveal, as oversharing might pigeonhole you into a lower offer. When responding to recruiter inquiries, selectively disclose information to avoid limiting your earning potential. If you are not comfortable with revealing your income during the interview process, you can decline to disclose or, instead, communicate your salary expectations.
An advisor's ability to guide you effectively hinges on understanding all aspects of your finances, including your income. Disclosing your earnings will help them craft a realistic plan tailored to your financial capabilities.
Exaggerating or hiding some of your income can prevent an advisor from getting a complete picture of your financial situation and, subsequently, won't be able to offer the right advice.
For instance, without this vital information, your advisor might struggle to implement tax-efficient plans or help you pay the required tax due. This might haunt you later if you pay less tax than required.
Don't reveal your income to any advisor. Ensure your advisor is licensed and registered with the Institute of Certified Investment and Financial Analysts (ICIFA). ICIFA is the governing body for financial advisors and regulates licensed ones to ensure they adhere to high standards of conduct, work for your best interest, and provide confidentiality.
When purchasing certain insurance policies, you may need to reveal how much you earn. This is because your salary plays a crucial role in the underwriting process. The insurance company will request your payslip and use it to determine what policy you qualify for and whether to offer you the specific coverage you want.
Several insurance policies specifically require income disclosure, including income protection insurance, disability insurance, life insurance, and various annuities.
There are several reasons why insurers request income and payslips:
The appropriateness of salary disclosure depends on the context. Whenever you have to reveal your income, be mindful of your privacy and any potential implications of sharing that information.
Before divulging salary details, review any legal agreements or employment contracts you may need to sign. For instance, lenders are legally bound to keep such info confidential and not share it with third parties. If you have concerns or questions about clauses that require you to waive your confidentiality rights, consider seeking clarification from your lender.
Likewise, some organizations have confidentiality clauses regarding salary information. Violating these agreements (e.g., revealing your income to your colleagues) could have legal consequences.
In other settings, always consider your comfort level and personal boundaries before sharing salary information. Sharing salary information should be limited to individuals who can be trusted to keep the information confidential.