This article is part of a series teaching essential personal finance concepts to teenagers. At Money Under 30, we believe that it’s never too early to become financially responsible; we hope this series will be a good place to start.
As much as being a teenager can be fun, there are those things called responsibilities that can make adolescence feel like a drag. But it doesn’t have to be. As a young and sometimes naive person, money can become as easy to spend as it is to make.
Just like your parents, you have to learn how to budget your money as you handle growing responsibilities such as bills and credit card payments.
Here are a few budget tips to help you successfully maximize the money you make.
Understand your income
Making money as a teenager is a great feeling, but you’ll learn soon enough that what you’re promised and what you actually earn are different things.
For example, when you get a paycheck, you need to know how much money you’ll get both before and after taxes—also known as separating gross income from net income. As a result, you will know how much money you really get from any wages you have earned.
Once you determine that, add up any income-makers which will not require tax deductions such as tips, gifts, bonuses, or allowances. On the safe side, in case these figures vary over time, add up the income you received over the last few months. Then divide that total by the number of months to determine your average income and then plan from there.
Project your expenses
Now comes the not-so-fun part—making a budget.
Like your income, layout whatever potential expenses you have coming your way for the month in question. Include car-related payments (gas, insurance payments, etc.), mobile phone costs, food and drink, grooming costs (haircuts, clothes, makeup, etc.), or any other living expenses.
Some of those expenses will differ over time. Having a separate budget for each month will help reduce the stress.
One of the easiest ways to manage your spending is by using an app. MoneyPatrol lets you link to your bank accounts to automate the process. Set up budgets for the categories that apply to your own spending and you’ll get ongoing insight into your financial habits.
Less is more: Spend wisely
You’re growing into a stage of your life where you will meet new friends, have eye-opening social experiences, and buy yourself things you’ve always wanted. But, while spending your own money for the things you dream of is a nice feeling, it can leave nightmarish effects on your financial future if mismanaged.
Credit cards can be a gift and a curse at the same time. A credit card is a ready-made solution to help you pay for something when you’re a little short on cash, but it also looks flashy. But know that you still have to pay them off, and if you aren’t making a quality salary, it can be a tough task.
If you don’t need to use a card when going out, leave it at home. Credit cards are more for emergency purposes or significant purchases, not necessarily for those designer shirts or dresses you’ve been eyeing through shop windows.
Having a card feels empowering, it can give you too much power, which can lead to you hanging your head in shame asking your parents for a bailout.
A better bet is a pre-paid debit card, which provides a good introduction to managing your money on your own without the attendant risks of a credit card.
Save for it if you really want it
As American financial broadcaster and expert, Dave Ramsey, has said, you’re pretty much an adult in training once you’ve passed puberty. During that training stage, you will learn how to become more self-reliant and be able to spend your money on what you need.
Establishing long-term savings goals helps you manage future expectations for those major life goals you wished for growing up. Whether it be your first car, a place of your own, or to start your own business, you need the vision to set those goals in motion.
No matter how old you are, there is no such thing as ‘too much work.’ If you have the right physical and mental capabilities, take on as many income-builders as possible so that saving becomes a more natural practice.
Picking up odd jobs along the way helps. Whether it’s mowing your neighbor’s lawn, babysitting, tutoring children, or even clearing snow from someone’s driveway, taking on small jobs will keep income flowing. If your neighbor or friends are too busy (or lazy) to do these menial tasks, they’ll look for help, and you can make some easy money.
Any part-time jobs also help. The more you keep yourself active, the more opportunity you’ll have to reach the earning potential you seek.
Take advice, lots of it
Look, you might have that bit of youthful pride that makes you think you know everything and question what adults tell you. “What do they know?” They’re flawed people too. Yes, they are, but they’ve been through the peaks and valleys of financial management and can help guide you.
Your parents are a good first source. They can advise you on how to make the most of any allowances or income you get, so you don’t have to beg them for cash at every turn.
On the other hand, reading helps a lot as well. Money columnist, Karen McGuire, wrote The Teen Money Manual as a resource to help teenagers learn about money before they really make it.
Learn about inflation
As previously mentioned, costs vary over time. What cost $100 a few months ago may cost $105 now due to inflation. Inflation is a steady increase of goods or services and gives a clearer indication of why you have to pay higher costs going forward.
An inflation calculator like the one provided by the U.S. Bureau of Labor Statistics can help you pro-rate future costs of things that appreciate over time.
Divide and rule
Still not sure how much money you should set aside for expenses and personal financial goals? You don’t need to be a Mathematics major, but percentages surely help.
One method we at Money Under 30 recommend is a 50/20/30 split regarding your net income. The method goes as follows: You contribute 50% of your income to any fixed expenses, 20% towards savings, and the other 30% goes towards any form of leisure you wish to treat yourself to.
Sticking to set figures allows you to develop discipline with your money so you won’t hear your parents nagging you about why you spend so much.
Growing up is all about making tough decisions and the earlier you make them, the better your future will look. Money doesn’t grow on trees, but a stable financial outlook stems from good decision making.
Do you have money and not know what to do with it? Through saving, understanding your money and these other great tips, budgeting as a teenager will be much easier.