Budgeting is essential for teenagers as it encourages them to become very good at money management.
If you struggle with your money management as an adult, it could be because you never learned the basics of budgeting principles when you were younger.
There is no turning back the clock, though, so it is best to teach your teen to master the skill of money management either through teenage investments or by giving them an allowance so they can manage their budget. Starting right from when you are young can help them become responsible adults who understand how to manage their finances.
So, what exactly is budgeting, and how can you do this as a teenager? Read on to find out more.
What is a Budget?
A budget is an estimate of revenue and expenses over some time. For example, you can have a weekly budget (how much you want to spend vs how much you earn). You can also have a monthly or annual budget, depending on your plans. Of course, from time to time, you can constantly evaluate your budget to ensure it serves your purpose.
A budget ensures that:
- Every time you spend money, it is in the plan.
- Every time you earn money, it is documented.
- You save for big purchases.
Track Your Income: Managing Money from Allowances and weekend jobs.
Do you get an allowance? Perhaps you are one of the teens investing in the stock market. You can benefit by tracking your income, whether you are getting pocket money or money from a weekend or summer job.
Here are some ways you can benefit from tracking your money:
- Tracking how much money you are getting will give you a complete understanding of how much you can afford.
- Making a list will help you manage your finances better. Usually, this is a list of things you need to spend your money on for the week or month or until you get your next payment or allowance.
- You can learn how to use Excel sheets to manage your finances and gain invaluable skills in finance and management. This will help you later in life and even through college too.
Identifying Expenses: Categorizing and Prioritizing Your Spending
Once you have started listing your expenses, you need to start categorizing your spending. Start by labeling which expenses are significant and which ones you don’t need.
For example, if you want to buy the latest video game, you can ask yourself the following questions.
- Do you need it?
- Can you wait until the price reduces a little before you buy it?
- Can you rent it from a friend instead of buying it outright?
Setting Financial Goals: Saving for Short-Term and Long-Term Objectives
You will use different saving tactics for the short versus the long term. If it’s a long-term objective you are saving for, your tactic will be to keep on saving and not touch the money for any other reason – other than reaching your goal.
We have listed some examples of long-term goals below:
- Saving for a first home
- Saving for a car
- Saving to move out of your parent’s house.
Some examples of short-term saving goals include:
- Saving for prom.
- Saving for a big birthday party.
- Saving for a summer trip with friends or family.
Making Smart Spending Choices: Differentiating Between Needs and Wants
As you learn to manage your budget, you need to identify things you need vs stuff you want. So how can you identify needs vs wants? It’s simple. You can start by identifying the essentials you cannot live without.
Examples of needs a typical teenager might have.
- Transportation (getting home and going to school).
- School books
Examples of wants a typical teenager might have.
- New clothes
- Latest game
- Brand new iPhone.
You can reduce your expenses once you have identified your needs and wants. Then you can prioritize spending on just your needs and limit your spending of wants to a few times per month when you have spare cash. This takes us to our next point.
Cutting Costs: Strategies for Saving Money on Everyday Expenses
As you work on saving money and budgeting, you will learn to cut costs over time. So, take your time to go through your spending patterns and identify things you need to cut out and things you need to keep.
For example, ask yourself the following questions:
- Do you need to subscribe to Netflix right now? Can your parents pay for it?
- Is it possible to pay a reduced cell phone bill?
- Do you need to subscribe to Amazon Prime? Can you use the Prime account your parents use?
As a teenager, you can always rely on the bank of Mum and Dad regarding subscriptions. So, whilst you aren’t yet a full adult, you don’t need to be paying for things like Netflix or Amazon Prime.
If you are unsure where to start – go through your monthly bank statement with a parent and highlight what you don’t need.
Building an Emergency Fund: Why It’s Important and How to Start
When you start budgeting and saving regularly, you must also focus on saving for an emergency fund. Keeping money for an emergency helps to ensure you are prepared for unexpected expenses.
In short, saving for emergency funds ensures that.
- You are always ready for unexpected expenses.
- You are less likely to get into financial problems.
- You are more likely to grow into adults who can manage their finances well.
So how can you start an emergency fund?
Here are some examples:
- You can start by simply putting spare change into a jar.
- You can put a few dollars from your allowance money into a piggy bank every week.
- Every month you can take the piggy bank money you have saved and deposit it into your bank account – and watch the cash generate some small interest. This will, of course, depend on the bank account type.
Review and Adjust: Evaluating Your Budget and Making Necessary Changes
You must review your budget and see if it still works for you. For example, you might realize that you are saving too much and constantly struggling to pay for things you need. If this is the case, it might be time to review how much you can save – you can consider taking on more work to get more income or lowering the amount of money you save.
In closing, learning how to budget as a teenager is very important. When you master the skill of budgeting, it’ll also be helpful when you go to college.