Teenagers look ahead to a whole
future of earning and spending money, but if left on their own they’re liable
to make costly mistakes and waste valuable time. Knowledge about how to manage
personal finances is a lesson that should be taught in schools across the world
because even more important than the math skills, students will learn valuable
life skills that stick with them throughout their adulthood. Here are 4
relatively easy tips that can help teenagers look forward to future financial
success.
Set
Realistic Goals to Pay off Debt and Save for the Future
Goals allow people to prioritize how
to spend their money without having to borrow funds from another source,
whether it’s another person or a financial institution. Here are three common
types of goals:
- Short-term goals are ones that you can achieve within six months to a year. Some examples are saving to go on a vacation, or paying of some kind of small debt.
- Mid-term goals are ones that are easily achieved in more than one year, but less than five years. Examples of mid-term goals are things like saving for a down payment on a house, buying a car, medical bills, or paying off small student loans.
- Long-term goals are ones that take longer than five years to achieve. Some examples are paying off a large amount of student loans, or paying for a home.
Whether you have one goal or
several, listing the goal and then making a plan to achieve it will help avoid
financial ruin. If you aren’t sure how to do this, see if the financial
institution where you do your banking offers any kind of complementary services
that help with personal finance planning.
Set
a Budget that Respects Your Income and Avoids Credit Cards
Once your goals are in place, make a
budget. Many people cringe at the word “budget” and for good reason. A budget
recognizes how much money comes in each month and what portion goes out to pay
bills. It helps us avoid frivolous spending and forces us to live within our
means. It’s never as fun to live within your means as it is to live it up –
especially when you have credit cards to handle your excessive spending habits.
But with enough time and credit card use, you’ll not only have the debt to pay
back but also hefty interest fees and other penalties. Thomas Jefferson offered
the wise advice, “Never spend your money before you have earned it.” Regardless
of your salary or geographic location, the advice still holds true.
Set
Up a Checking Account to Track Your Personal Finances
I set up my first checking account
when I was a senior in high school. Eager to save money from my first job, I
enjoyed the security of knowing that my paychecks were directly deposited every
other Thursday afternoon. During those first two years, I managed to bounce at least
one check per month – a habit that cost me $22 per incident. One bounced check
per month for two years cost me over $500. OUCH! You can’t imagine how much I’d
have loved to have had that money back over the years, but what’s done is done.
Experience was a costly teacher but
I’ve since learned to take advantage of keeping track of all my transactions
with the electronic check register that’s part of my financial institution’s
online banking feature. It helps me use my debit card with greater caution, and
with the app on my smartphone my balance is just a quick text message away. And
best of all, automatic bill pay, another free feature my bank offers, means I
can pay all my bills without buying stamps, worrying about things getting lost
in the mail, or driving to the utility office.
Set
Up an Emergency Fund
Set up a separate savings account
and use it as your emergency fund. I use my PayPal account as an emergency
fund. Each month, 10% of my earnings go into the account so that if my car
breaks down or I am sick and need to visit the doctor, the money is readily
available. After I spend money from the account, I put as much as I can afford
over 10% in until it reaches its previous balance and then drop back to 10%
again. Guys, this isn’t a “my car needs bigger tires just to make me more
popular with the girls” fund. And girls, this isn’t an “I need those boots
because they’re 75% off!” fund. As tempting as it might be to dive into your
emergency fund for a frivolous expense, doing it the first time makes it easier
to repeat the action until the only emergency is that no funds remain.
Once a teen has saved up some money,
they might even look into investing. An investment portfolio at a young age
allows for riskier decisions with their funds because it gives them a longer
time to recoup lost funds if the investment turns bad. Teenagers who aren’t yet
18 might find they need an adult to co-sign for certain types of financial
accounts but after their 18th birthday young adults should have no trouble
making their own unsupervised choices in regards to their money.
About
the Author
Freelance author Melissa Cameron was
no stranger to financial woes as a teenager, and often uses her own experiences
as inspiration for writing tips to help today's teens avoid the same types of
problems. Her articles cover all kinds of tips and advice, from saving to buy
their first car to finding free personal checks online. When she's not writing, Melissa is a regular
outdoor adventurer and enjoys hobbies such as mountain biking and hiking with her
pals.
