Budgeting for teens

What Is Budgeting?

Sure! So, what exactly is budgeting? Well, think of it like this: budgeting is like giving your money a plan to follow so you can make sure it’s used in the best way possible. It’s a helpful habit that’s really important for your financial health. When you’re budgeting, you basically figure out how much money you’re bringing in (that’s your income), how much you’re spending, and how much you want to save. It’s like creating a roadmap for your money to make sure it’s going where you want it to go!

Why do you need a budget?

So, why do we budget anyway? Well, especially when we’re teenagers, we often feel pressure from our friends. We see them with all the latest gadgets, clothes, and shoes, and we feel like we have to keep up with them. But sometimes, trying to match everything they have can make us feel really bad about ourselves. It can make us feel like we’re not good enough or like we’re missing out. And when we feel that way, we might end up buying things on a whim, without really thinking about whether we can afford them or not. And that’s when we can get into serious trouble with our money.

Don’t worry anymore because you’re in the right place! That’s why you’re reading this article. So, let’s dive into our fun budget-making adventure!

What is your saving goal?

Absolutely, let’s simplify this. People save money for a variety of reasons. For instance, some might be saving to buy a dream house, while others might be saving for their favorite car. Some people save to pay off future student loans, while others might be saving for an upcoming trip. The reasons can vary greatly from person to person.

It’s crucial to identify your savings goal upfront. This step is sometimes overlooked with the thought, “I’ll just save.” However, this approach can be a pitfall. Without a clear goal, you might lose the necessary motivation over time, which could lead to compromises in your savings.

Think of it like a fitness goal. If you simply say, “I’ll exercise,” without a clear goal like losing weight or building muscle, you might lose motivation over time. Similarly, having a clear savings goal can keep you motivated and committed to your savings plan.

Step 1: Know your income

Now, what exactly is income? It’s simply the money you earn in a month. It can come from different places, like a side hustle, tutoring, or even just your pocket money. Basically, it’s the cash you’re bringing in.

Step 2: Divide the spending into needs and wants

Alright, let’s plan out the expenses for the upcoming month! Imagine you have two columns in front of you. In the first column, let’s jot down the necessary spending—these are the things you absolutely need to pay for. For example, transportation costs to get around, phone bills to stay connected, school fees for education, and if applicable, electricity bills for home. Now, if you’re a teen, you might not have all of these yet, but it’s good to understand these are the must-pay expenses.

Now, onto the second column—this is where we list discretionary or optional spending. These are the things you don’t necessarily need but enjoy spending money on. This could be going out with friends, catching a movie, subscribing to streaming services, or anything else that brings you joy and relaxation. It’s like the fun part of your budget where you get to decide how to treat yourself!

Step 3: Track your expanses

The next crucial stage in managing your finances is monitoring your expenses. This step is critical – if it’s not done correctly, the whole budgeting process could be ineffective.

Think of it like a fitness journey. If you don’t keep track of your daily calorie intake, you won’t know if you’re meeting your fitness goals. Similarly, if you don’t keep a close eye on your spending, your entire budgeting plan could fall apart.

So, how can you keep track of your expenses? One traditional method is to use a notebook to record all your expenditures. However, this can sometimes be time-consuming and tedious.

A more modern and efficient approach is to use a digital app designed for tracking expenses. These apps can automatically categorize your expenses, making it easier to see where your money is going.

If you frequently use online payment methods like credit or debit cards, you can also refer to your monthly statements to track your spending. This can give you a comprehensive view of your expenses over the month. Remember, the key to successful budgeting is keeping a consistent and accurate record of your expenses.

Step 4: Implement the budget

. The next step is to put your plan into action. Now that you have a clear picture of your monthly expenses and income, you can see if you have any money left over. If you do, congratulations! This surplus can be saved. You could invest this money in stocks, or simply put it in a piggy bank or savings account.

However, problems arise when you find that you don’t have any money left over. In fact, sometimes you might find that you’ve spent more than you’ve earned. This is a serious concern because it means you’re accumulating debt, often without even realizing it.

Moreover, we often unconsciously develop habits based on our spending behaviors. If we regularly spend more than we earn, this can become a habit that we carry into future transactions. It’s important to be aware of this and take steps to break such habits if we want to maintain a healthy financial life.