One of the biggest regrets people have when it comes to their finances is: I wish I’d started earlier. People wish they had started saving earlier, and the best way to do that is to start budgeting early. Even if you aren’t working with much income, budgeting as a teen can make a huge difference in your life today and years down the road.
In this article, you’ll learn why it’s important to start budgeting early, and everything you need to know about budgeting for teens.
The importance of budgeting for teens
Budgeting as a teen is about far more than the money in your bank account today. There are plenty of much larger reasons that it’s important to start budgeting early.
Get in the habit early
One of the biggest hurdles of changing your financial situation is changing your habits. And unfortunately, many people are far further along in their lives when they try to make changes. And by that time, they’ve developed poor financial habits over many years. By getting in the habit of budgeting in your teen years, you’re creating habits that will stick with you for life and help create your financial situation in the future.
Start saving for long-term goals
Budgeting as a teen isn’t just about the habits you create, but also about the progress you can make on saving for long-term goals. There are plenty of large expenses that will come up in your young adult years, from the cost of college to buying a home, from traveling the world to starting a family. And unfortunately, most people simply aren’t prepared for those expenses.
The average college student graduates with about $29,900 in student loan debt, between private and federal loans. Additionally, another 14% had parents take out parent PLUS loans, averaging another $37,200.
By starting to budget from a young age, you can begin to save money for those large expenses and ensure you aren’t starting your adult life with substantial debt.
Learn financial literacy
Studies show that financial literacy has declined significantly in recent decades. In 2019, only 34% of individuals could answer four out of five basic financial literacy questions. The decline was the worst among younger Americans ages 18-34. By starting to take control of your finances as a teen, you’re helping to boost your financial literacy, which will help you down the road.
Budgeting tips for teens
Ready to start budgeting as a teen? Here are the steps you follow to create your budget and actually stick to it.
Understand your income
The first step of budgeting is to understand how much you earn each month and where it comes from. As a teen, it’s likely that your income comes from a part-time job or your parents. But wherever it comes from, it’s important to know how much you earn. If your income varies each month, try to establish an average from month to month. We have some great ideas on how to make money as a teenager!
Choose the right bank
As you start earning money and actually have money to budget, it’s important to choose the right bank for you. There are so many options to choose from today, from traditional banks to online banks to credit unions. You can start by looking into the bank your parents use, but make sure to do some additional research into the features that are important to you. A checking account is important for your regular spending money, while a high-yield savings account is perfect for your savings.
Create your budget categories
The next step is to set budget categories for yourself. In other words, where is your money going each month? As a teenager, you may not have expenses such as rent, groceries, or healthcare just yet. Instead, your expenses may include gas, car insurance, after-school activities, plans with friends, and savings for the future.
Save and invest as much as you can
It’s impossible to overstate the importance of saving, and I think most adults would tell you they wish they’d saved more in their younger years. Take advantage of these days of not having as many financial obligations to save a larger percentage of your income for the future. We break down some of the best investments for teens.
Budget for giving
Giving is such an important part of being a part of our society. As a teen, you can identify causes that are important to you and allocate a percentage of your monthly budget to them. It doesn’t have to be much — just a small amount is enough to make a difference. And it’s not just for the benefit of others. Data has shown that people experience more happiness when they give money, especially when it’s their choice to do so, rather than an obligation.
Track your spending
Once you’ve established your budget categories and you know how much you want to save, your job isn’t over. It’s important to track your spending since that’s the only way you’ll know if you’re staying on budget. The simplest way to track your spending is to use a budgeting app that connects to your bank accounts to record each transaction. Popular budgeting apps include Mint and You Need a Budget.
Set financial goals
Setting financial goals is one of the best ways to be intentional about your finances. When you have specific goals in mind, you’re more motivated to stick to your spending plan, even when you don’t particularly feel like it. Financial goals for teens can include something as big as college tuition and as small as a new tech gadget.
Adjust your budget for life changes
Your life is going to change so much over the next several years and as you enter adulthood. As a result, your budget should change too. As you go through life changes, update your budget to account for new income, new expenses, and new financial goals.
Find ways to increase your income
In your teen years, you may be limited to how often you can work and the amount of money you can earn. You spend much of your time in school and may be limited to working certain hours. However, there are still things you can do to increase your income, whether it be mowing your neighbor’s lawn or getting a part-time job at a nearby restaurant.
Learn from your mistakes
As a teenager, I can assure you that you’ll make mistakes with your money. In fact, you’ll likely continue to make mistakes as an adult. But mistakes don’t equal failure. Instead, mistakes are a learning opportunity to help you make better decisions in the future. Rather than beating yourself up for your financial mistakes, use them to your benefit.
The Bottom Line
Budgeting is one of the most important things you can do to take control of your finances and improve your future. Most people don’t start budgeting until far later than life and aren’t convinced to start until they’ve hit financial roadblocks. By budgeting as a teen, you can get a huge head start on saving and reaching your financial goals. Not to mention, you’ll be confident in managing your finances by the time you reach adulthood.