Teaching children how to manage money or learning how to manage it yourself is a vitally important task. The sooner we learn how to manage, budget, and spend our money wisely, the easier it will be to save for emergencies or pay off a loan. While creating a budget or managing money may seem like a daunting task, it is quite easy to get started and set a budget.
The Importance of Making a Budget
“Why should I make and follow a budget?”
It is actually the most useful, and least taught, skill to have. Most college students spend whatever is in their account or avoid looking at their balance because they are afraid of what they might see. TeenZeen goes over the importance of managing your money through a budget. Learning this skill as a teen will make you wiser when spending money as an adult. Creating a budget helps you live within your means and avoid debt that incurs with loans and credit cards.
Personal Finance shows that learning to create a budget can also allow you to see where wasteful spending is occurring. You can also see where you can cut expenditures during a financial crisis and even change your budget based on your future financial needs.
For more information, visit Ryerson Entrepreneur Institute: The importance of budgeting.
Creating a Budget
Many think creating a budget is difficult. However it is quite easy. The hardest part is sticking to the budget you make. Mountain State Centers for Independent Living suggest setting a reasonable goal as the first step. My Great Lakes also advises that you have both short and long term goals in your budget. Short-term goals can be paying rent or buying books for class. Long-term goals can be paying off your student loans or saving money before you go to college.
You can make a budget on your computer with a spreadsheet. This will allow you to easily calculate your budget. First, start with any income you might have, whether it’s allowances or from a job. Track all your spending, no matter how small or large it may be. Make sure to plan for infrequent expenses like license renewals or doctor visits. Try to update your budget daily, if not, then weekly is just as good.
To learn more, visit Teach Me About Money: Budgeting.
Budgeting belongs to the larger and even more important skill of properly and smartly managing your money. Clear Point states that up to 40% of teens do not know how to properly manage their money and spending. The first thing to do in managing your money is to open a checking account if you have not done so already. Choose a bank that offers online banking so that you can monitor your finances more easily than waiting for a paper statement.
Budgeting is also a part of managing money. Teach and learn the basics of budgeting. Check out the many online tools to help you create your own budget.
Learn what having a credit card means; it is not the same as cash. If you’re a parent, teach your child how debt can rack up quickly when using a credit card. Build credit smartly and also add credit card payments to your budget. Properly managing a credit card can build credit that will be helpful in the future when applying for a car or home loan as well as applying for jobs.
For more information, visit:
- California Department of Human Affairs: Money management for teens
- Consumer Action: Start smart money management for teens
Debt is something that is troubling youth of today. Schools loan debt has become the number one reason for deep debt, with credit card debt right behind it. It is easy to get into debt and incredibly difficult to get out of. Medici Project lists five simple ways to work your way out of debt.
- Small expenses add up. Look at your budget and see how much you are spending on coffee, going to the movies, and other small expenses. Consider cutting these out for a while or find alternatives like making your own coffee or watching movies at home.
- Save as much money as you can per
- Don’t over do it with credit cards. If you have one without an outstanding balance, consider putting it away and only use cash when you have it.
- Make a budget including the debt you owe. You can easily see how much you need and where you can make adjustments to have the money to pay it off.
- Know how much things cost. How much do you spend at the grocery store? How about utility bills? Know the exact amounts to create a budget as accurately as possible.
To learn more, go to:
- Debt.org: How to pay off a student loan
- Time.com: Which Debts Should I Pay Off First?
- Federal Trade Commission: Coping with debt
Saving for College
The biggest financial undertaking for young adults and teens is saving for college. There are many ways to save for college, with one being getting a first job.
Research the amount of money you are going to need to pay for college and set your goal for paying off any loans you may incur. Mapping Your Future gives you some other ways to save money for education that you may not have thought of. You can invest your money. While it does carry some risk of decreasing in valve over time, it can increase quite rapidly if done correctly.
You can also ask your local bank about their types of education savings accounts. Banks have an assortment of Education IRAs, pre-paid tuition accounts, and 529 College Savings Plans.
You can also adjust your budget by adding savings for college. If you are still living at home and working, you’ll most likely be able to save much more over a shorter time.
For more ideas, visit:
- Financial Industry Regulatory Authority: Saving for college
- University of Wisconsin: Saving for college
- FinAid: Saving
Jobs, Income, and Taxes
Once you have a job, it will be easier to save money and start forming a monthly budget. If you are beginning to work, it is important to know your gross and net pay as well as all taxes that are taken out. The Mint gives an example of what your first paycheck will look like. Most places offer direct deposit, which will be more helpful than running to the bank every payday to deposit a check yourself. You can now budget to see what kind of lifestyle you can afford.
It is important to know that when you start working, you are most likely paying Medicaid/Medicare, social security, state, and federal tax. Be sure to use your net pay when working on your budget. It is important to calculate how much you might owe when it is time to submit your tax return. If you are getting a refund, also calculate this into your budget.
Finance Online has a great savings rule to include in your budget, if possible. It’s called the 50/30/20 rule when it comes to allocating your paycheck. Fifty percent is aimed at your necessary expenses like utilities, rent, and groceries. Twenty percent goes towards a rainy-day fund or savings. The last 30% is for spending on whatever you’d like.
For more information, go to Goodwill Community Federation: Understanding your pay benefits and paycheck.
Resources for Teens and Young Adults
- Money Management has a great article on necessary skills to learn: Skills no young adult should leave home without.
- No More Debts offers some great money management advice: Money management tips for teens.
- Money Strong has some great information for teens: Tips for teens and young adults.
- MoneyWise Teen has some helpful suggestions: Money management tips for teens.
- Military One Source also provides some useful lessons: Money lessons for teens and young adults.
Resources for Parents
- Consumer Finance offer advice for parents: Childhood is an important time to learn about money.
- 360 Financial Literacy has some great ideas for teaching teens about finance: Teaching your teen about money.