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Planning your financial future

Budgeting for teens: using and creating a budget

Making a budget with teens is a great life skill to instill that they're sure to use for the rest of their lives.

Helping teens learn to budget

Creating a budget with teens can be a great way to teach them important life skills, such as financial literacy. If teens in your life are just learning how to create and use a budget, then the first step in the process will involve assigning a level of importance to each type of spending. This process can help them start understanding what is important and what isn't when they begin allocating their dollars. (Of course, their definition of what's “important” will probably differ substantially from yours.) But budgeting for teens can help them to start making financial priorities of the things that matter and seeing which things they can get along without. Teens that do not learn this skill may have trouble in the future when they are given larger amounts of money from jobs or inheritances.

Now is the time to help them start to see that the majority of their money should not go to video games, cosmetics and clothes. The first step is to help them understand what their real needs are, such as saving for college, paying for transportation (within reason, of course), some clothes and perhaps giving something to charity. The next (and perhaps hardest) step is to get them to see that pretty much everything else, such as hobbies, leisure activities, sports, fashion and social items are wants as opposed to needs.

Creating categories for a teenager’s budget

When teens are making up their budget, it may help to create three categories, such as must have, nice to have and don't really need to have. Have them list out all of the items that they spend or want to spend money on and put each one into its respective category. Again, this is where you will probably have some difference of opinion, so be prepared to have a discussion about what items should take precedence and why. A good way to help them sort out this issue is to ask the question of whether the item being purchased will matter a year from now. If the answer is yes, then the item will probably fall into one of the first two categories. If the answer is no, then it will most likely go into the last category. One of the most effective ways to help teens prioritize their spending is to show them how it's done by doing so yourself. If you are willing to show them your own budget and how it works, this can help them to see that prioritizing their money will enable them to stay within a budget and achieve their financial goals.

Budgeting for teens can be an excellent exercise for both you and your child, and is one of the first things that should be done by anyone who is learning how to handle money. And while teens may think that it isn't cool to have to live on a budget, it is of course possible for anyone to do so as long as they're disciplined. This is the time to get them to understand they shouldn't blow all their money on fast food, social outings, clothes and video games. It may be difficult to get them started on this track, but once they learn how to use it, it can stay with them for life. A budget can help teens start to discern between genuine needs and wants and will show them where their money is going each month.

Budgets help teens learn financial literacy

A good budget will provide for both needs and at least some wants and should be flexible and relatively easy to use and understand. There are several budget tools available for teens, but creating a profile at may be a great place to start. This versatile tool will automatically categorize all spending and can even aggregate all of their other financial accounts, such as student and car loans and credit card balances. When they log into the site, they will see an instant snapshot of their cash flow and balance sheet. The site also allows them to create financial goals and track their progress on an ongoing basis. Other websites that offer budgetary tools include Moneydance and Bankrate. Using a tool that functions on a cloud-based platform can allow them to access it from anywhere, and several of the sites such as Mint have phone apps that allow users to scan in purchases and code their spending to the appropriate budget category.

The budget doesn't necessarily have to account for every cent, but it should cover most purchases and deposits. A good budget always has a little wiggle room, and it should also function as a tool as opposed to becoming master over their life (although it will probably seem like it to them, at least at first). The hardest part of any budget is getting started. Once they have created their initial spending plan, go over it with them to see whether it is realistic and covers all of the relevant areas that it needs to. (And prepare yourself for possible disagreements at this point over how they have allocated their money versus how you think it should be used.) They will probably have to make some adjustments as time goes on anyway, even if their initial plan is realistic. Offer your services as a financial counselor as they make progress in this area, suggesting ways that they can save money and spend wisely. But give teens freedom to make some mistakes as well, as experience can often be the best teacher.



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