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Saving and investing money is a need of every teen as they will have to face many situations in their school or college life. To cover any sudden expenses, the saved money can play a significant role.
This article will cover the ideas of budgeting, investing, and saving money for teens. So, let’s get started.
How Should Teenagers Make a Budget?
As a teenager, there are not many expenses that can eat into your weekly paycheck.
This is why it’s important to save money and try to save as much as you can.
Here are five steps teens can take to budget their money.
- Calculate your monthly income
- Calculate your monthly expenses
- Divide your expenses into categories
- Select a savings percentage (how much you would like to save).
- To stay on track, create a budget worksheet
1) Calculate Your Monthly Income
All income sources are important, regardless of whether they come from a job or an allowance.
Let’s assume you add all of it up to get $500 per month.
Great! Congratulations! NEXT!
2) Calculate Your Monthly Expenses
All your expenses, including video games, shopping and eating out, as well as bowling with friends or family, should be accounted for.
This may be your first time doing this. Take 30 days to list everything you spend money on and the exact cost.
After adding them all up, you will find that you don’t spend much money. Or, that it is time to cut back on your expenses.
Let’s assume that you spend $200 per month on average.
3) Divide Your Expenses into Categories
You can reduce your spending by dividing up your expenses into various categories.
Here are some categories of expenses for teenagers.
- Car payments
- Telephone bill
- Dining out
- Entertainment (bowling, video games, movies, etc.)
- Beauty/Skincare
- Clothing
You can add additional personal categories like “soccer club fees” and “gifts to sister”.
You can make it yours and add or subtract anything. Start by listing each expense individually and placing them in categories.
4) Select a Savings Percentage
There are two options to choose a steady savings percentage that works.
- Choose a percentage that suits your needs
- Choose a percentage to make your expenses manageable
As a teenager, I preferred option 2. You might also prefer option 2 if you find saving money fun!
You might, for example, subtract your monthly expenses and consider the money left as savings.
This scenario would see our monthly income of $500 and monthly expenses of $200.
500 – $200 = $300 (60% Savings) – Option 1.
Save 50% of your income by choosing Option 2: $250
It might seem like option 1 is the better choice, but every month may be different.
You can save $200 if you spend $300 each month. This is lower than the 50% you set at option 2. You have the freedom to choose, but you should limit your spending so you can save at least 50%.
5) Create a Budget Worksheet
A budget worksheet can help you keep on track, manage expenses, and find out where your money is going.
As you complete the monthly spreadsheet, set goals to save more each month. That’s it!
You’ll be able to budget your money and become more familiar with your finances if you keep up the good work of filling out this worksheet.
What Should a Teenager Spend Each Month?
Teenagers should not spend more than half of their money on items they desire. The best rule of thumb is to save at most 20% and spend 50% on essential expenses. Spend 30% on desires.
As you age, poor spending habits can occur if you spend more than 50% of your income.
You’ll gradually become more adept at making decisions about what you want to purchase.
How Should I Spend My Saved Money?
As a teenager, you have three main options:
- You can save for an emergency (car repairs, computer problems, etc.).
- You can save money on large purchases (gaming set, car, house, etc.).
- Invest your money to build wealth over time
You should start saving money for an emergency fund if you don’t already have one. A savings account should be able to hold at least 3 months of expenses.
How can you save up for a new car or other major purchases? Set a monthly savings goal and work towards your goal by a specific date.
Calculate how long you will need to save up to finally be able to spend on a big purchase.
Last but not least is investing.
What is the Best Way for a Teenager to Invest?
My favorite way to save money from a paycheck is to invest in the stock market.
It is possible to build wealth even at a young age if you have enough savings to invest regularly.
The sooner you get started, the better. Have a look…
For you to start investing as a minor, ask your parents for a custodial account. You can open your own brokerage account if you are over 18.
Start learning about investing if you don’t know anything.
The Acorns app is highly recommended for anyone aged 18 or older, especially those in college who want to invest but don’t know which stocks to invest in.
The program invests your money automatically, without you having to do any stock research. You can also choose how aggressive your portfolio should be.
The bottom line
Saving money is an important thing that each and every person should do. But if a teenager starts saving and investing money then he/she can save a lot for their future.
