Budgeting for Teens So Your Money Can Grow Up Too

As a teenager, you might long for the days when you become an adult. You will get to call your own shots, make all the decisions, and spend your day just as you would like.

Well, sort of.

Unless you happen to be independently wealthy or your parents set up a trust fund for you, you will need to work. That means you need to learn to budget your money now. Budgeting for teens is really way easier than doing it as an adult.

Your teen years provide ample practice time for learning to budget. Once you reach the age of 18, you are on your own and need to pay your own bills. If you choose to attend college, you will probably pay for it with a mix of grants, scholarships, loans, a part-time job or two, and any college savings account your family set up for you. You will need to manage the part of the funds that come from your job plus any financial aid. That means by the time you step onto a college campus you need to know how to manage money, create a balanced budget, and stick to it.

Budgeting For Teens: Getting Started With a Budget

As soon as you have your own money, you need to learn to budget and manage it. As a kid, you probably got an allowance and some birthday and/or Christmas money. You can start with that.

Whether you get $5 a week or $50 a month or you only get paid if you do chores like mowing the lawn, you can set up a simple budget to decide how you want to spend and save your money.

Aha. Notice I said save your money. Sure, spending it can be fun, but saving can be, too. Every month, you need to put part of your money into a savings account. Piggy banks are cute, but they do not pay interest. By opening a bank account, you earn interest on your money.

The younger you begin budgeting, the easier it is to create a budget. The only required category is savings. The rest you get to decide on your own.

• 1. Make a list of the stuff you like to do and the things you like to buy. This might be candy, coffee, game cartridges, computer games, sports, movies, clothes, shoes, etc. Just make a list of your favorite things. No “Mary Poppins” joke intended.
• 2. Group stuff. Clothes and shoes go under an “Attire” heading. Candy, coffee, eating out with friends go under “Food.” You might have an “Entertainment” category that includes game cartridges, computer games, sports, movies, etc.
• 3. Determine a realistic amount to spend on each category. If you only have $50 per month, you cannot devote $50 to entertainment and still dress yourself and eat. The best way to approach making a budget is to determine how much you logically might need to spend in a single month in each category. If you know you wear out a pair of pants every month, budget the actual cost of a pair of pants. If you and your friends love to see movies, budget the amount you would realistically spend each week, then sum it to obtain the monthly cost. Devote 10 percent to savings. That means $5 goes into the bank if you get $50 a month.
• 4. In your first draft, you might find that you want to spend more money than you actually earn each month. That will not work. You will either need to earn additional money, perhaps through babysitting or mowing yards, or you need to reduce the amount you spend. Go through your budget and look for places you could spend less by changing your time or amount of activity. For example, plan to attend the Saturday afternoon matinee of a movie each week. This cuts the amount of a movie ticket in half. Shop the outlet store of your favorite brand to shave off about 40 to 50 percent of the cost of the pants. Reduce your cell phone plan’s data and save between $10 to $30 monthly.
• 5. Re-write your budget. Do this after you brainstorm the cost savings ways you can still buy what you want with the money you have. If you still need more money than you have coming in, you need a job or to work more odd jobs if you are not yet 15. That is the legal age to obtain a work permit.
• 6. Keep cutting and re-writing until your budget fits your income. You may not borrow money. You are not old enough for a loan yet. To obtain a credit card or a loan, you need to reach the age of 18. Those teens with car loans have a co-signer, typically their parent.
• 7. Stick to your budget. Of course, if you manage to make it through a month without needing new pants, you can re-allocate that $20 to something else. The smart thing will be to put it in the bank. That is a teenager practice for investing. With a typical savings account, you will earn between three to six percent interest on your money compounded monthly. If you did not study that in high school yet, that means you earn each month on the total amount you have in the bank on the calculation date.

How Interest Works

So, if the bank offers a five percent interest rate, and in January, you have $50, you earn $2.50. The following month you deposit $5 to your $52.50, for $57.50, which also earns five percent interest. That results in your account earning $2.88 (rounded) bringing your total in the bank to $60.38. When you add your $5 the next month, bringing it to $65.38, that is the amount on which you earn the five percent. Without doing anything except adding $5 per month, you grow your money more quickly.

The more often you contribute to your savings account, the greater the amount on which you earn interest. As your account balance grows, you make more money without doing anything. You earn money on your money while you eat, sleep, and live a happy life. That is why saving means SO much.

Budgeting For Teens: The Point Of Savings

As a teen, you probably have not thought about saving for a rainy day or retirement. You probably would like a nice ride though. Wouldn’t it be great to turn 16 and instantly get the car or truck you want? Chances are good your folks will not buy it for you and they should not. Having a savings goal is the best way to learn how to save effectively. This budgeting for teens method really works.

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I know. I rolled my eyes when my dad told me that. I was 10. He had asked what I wanted for my birthday. I said a stereo. Not a phonograph. I wanted a stereo system with a dual cassette deck. That is the 1978 equivalent of a tricked out computer with dual DVD re-write bays. My dream stereo could also play all three speeds of records. If you have seen what a DJ uses today as a scratch phono, you might only know one speed. There are three. It had an eight-track deck. That would be comparable to a floppy disk or mini-disk drive. I wanted AM and FM radio. I wanted to tape off of the radio because we lived in tiny little Cottageville which at the time, did not even have a stoplight. A record store? I laugh.

Yeah. I know. It sounds OLD and hokey, but, in 1978, my little kid self wanted that and a guitar. My mama and daddy said I could save for the stereo. They said I should ask Santa Claus for the guitar.

What you have to know is that my dad was trying to save himself. He knew my older sister had given me a big bucket of 45s when she had gone away to college when I was six. I was playing them on a kid’s phonograph that had no separate speakers. That was the only thing saving him from CCR at top volume; Ike and Tina’s “Proud Mary” on blast; Aerosmith’s “Walk This Way” and Bog Seger’s “Night Moves.” The stereo I wanted had a built-in woofer and tweeter and two separate, twin speakers. Oh yeah.

My dad probably figured I would be in high school before I could afford it. That man did not know what a resourceful daughter he had. I bought the stereo in less than one year. I mowed yards. I could barely see over the top of the mower, but I pushed that sucker along. I washed cars. I saved every penny of my birthday and Christmas money. I was on a mission. The mission was accomplished by saving with no spending whatsoever. I only wanted that stereo system. It would give me music, sports, and radio shows.

At 11, I bought my stereo when a local store put on a sale. That cut the price of the stereo nearly 40 percent. I had been imitating my mama who read the sales circulars every week. I told my dad and he took me to the store dutifully. I bought it and about a week later he started wearing earplugs around the house. It got worse for them when I “discovered” KISS and Bruce Springsteen. They probably secretly cursed the day that “Santa” brought me my first guitar, too. Oh well.

The point is you can do this.

Whatever it is you want to buy, you can. You have to be resourceful. You have to work. You need to watch the sales. Plan ahead. Be willing to give up what you kinda, sorta want now for the thing that means everything. That is called delayed gratification. It can get you a nice place to live, Chanel bags, Coach briefcases, whatever you want. The latest PlayStation or Xbox? Dude, it is yours if only you work and save the money.

This is the part of budgeting called sticking with it. You have to commit to saving money the way a high school football player commits to a university or the way your grandparents probably committed themselves to each other in marriage. A lot changes over time, but the way to build wealth remains largely the same. Out of what you make, you save part and spend part.

So, the car is right around the corner for you. It really is so long as you work and save. You can start saving as soon as you earn your first dollar. That $50 you add $5 to each month? In 24 months, that turns into $181.70. Now, instead, assume you mow five yards per month for $10 each, so you earn $50 a month. You delay gratification and save it all. In the same two years (24 months), you saved $1,319.79.

If you start on your 14th birthday, by the time you turn 16, you will have enough for a used car and your first six months of car insurance. That means you could cut the sixth yard a month for pocket change for snacks or a movie matinee each month. You bank the yard money and you have your ride.

Budgeting For Teens: Savings Calculators

It can be tough to start saving. It is really easy to tell yourself you need that latte or gas money or a new game. You can make it easier on yourself by using an online calculator. Usually, it lets you plug the numbers in to see how much you could end up with during a specific period of time. You just pick the time period. You can enter any number of months. You can also play with the amount of money you want to save each month. It can help you psychologically to see how quickly the money grows and see the future value of the money. This can help you make your online budget research and process much easier.

Budgeting For Teens: One-Time Exceptions

It happens. Sometimes you do have something come up. Hopefully, it is small. Cut yourself some slack for a genuine emergency. It is okay to use your savings if you have an accident and have to have your car repaired or your bicycle replaced, etc. An awesome sale on Coach or Chanel does not count. Needing a dress for a formal at college is not an emergency. That has to fit within your budget.

What Counts As an Emergency?

A real emergency is something you could not have foreseen to put in the budget. You budget for gas money. That random guy who runs a red light and plows into your cute little ride does count. (It happened on Berry Rd. coming back from an Oklahoma City modeling gig.) There is a difference between a non-emergency and an emergency. Actual emergency room trips count as an emergency. So does having a car door and a bumper replaced and the car repainted to match.

Life happens. Do not make a practice of dipping into savings. One emergency might delay your reaching your goal, but you can double up on work shifts to make up the time and money. You can re-allocate money from another budget line.

Budgeting For Teens: Set a Goal

Another thing that helps is goal setting. If you want to save for a car, you need to determine how much money you need to spend. You can pick up a good used car in most places for about $1,000. You need to research how much it costs where you live.

• If you want a new computer, you need to price your goal based on the typical retail price, not a sale. I lucked out on a sale that allowed me to reach my stereo goal early. You cannot count on that. Set your goal based on the everyday price.

• If you want a top of the line gaming laptop, use a website like Newegg or Fry’s to research the cost.

• If you have your heart set on a designer bag, especially a larger one like a briefcase, find out the retail cost and base your savings goals on that. As you save, check all of the possible sales options, not just the brand’s e-store.

• Check outlets, resale shops online, and in your town. Sign up for the brand’s shopping emails if it nets you a discount. This typically gets you a coupon for 10 to 20 percent off of your first purchase. That may not sound like much, but for a designer bag costing $2,000 to $5,000, you can save up to $500 with just a ten percent off coupon.

• You can also sign up for brand loyalty programs like MyPoints and Achievement. The former pays you a percentage for all purchases carried out through its website and has more than 500 merchants registered with it including Macy’s and Walmart. Points add up to gift cards, including Visa gift cards and cash in your PayPal.

If you can imagine, you can earn money back every time you buy hose or athletic tape. It adds up to more money because you show your loyalty to those brands. The latter program pays you for working out and tweeting about health. No kidding. You earn points for every run, walk, workout - every single one. You post to Twitter about your workout or make a healthy eating post, etc. and you earn points. They all add up to $10 gift cards.

Doing the little things like those can get you to your goal much quicker. Apps like the two I mentioned pay you for doing things you already do. I already do three to five miles of track a day. I tweet about workouts and healthy eating. Now, I just watch that turn into something more than just me sounding like a mini-Jane Fonda. (You all probably missed her 1980s book on exercise and eating right. Think Kate Hudson of my time.)

Budgeting for Teens: Get Started

Whether you get $5 or $50 a week or $500 a month, you can make it last. You can pay for everything you want. Just get creative about how you spend, save every month, and earn in little ways that add to what you currently earn. You can parlay your allowance or part-time job money into a fat bank account and monthly fun. Make a financial plan and stick to it.