How to Make an Effective Budget for Teenagers

Budgeting is one of the most powerful and yet simple steps toward financial wellbeing and security. Although budgeting may seem like an unimportant waste of time, it is the easiest and fastest tactic you can apply to improve your financial health. Unfortunately only 50% of Americans 22 years old or under have and keep track of their budget. when surveyed only 19% of Americans said they thought it was important to have a budget. Unsurprisingly those 19% who said it was important to have and maintain a budget are probably much better off financially than everyone else, so lets learn how to:

1. Make a budget
2. Maintain/Adhere to the budget
3. and how to make it easier to manage and stick to the budget.

1. How To Make Your Budget

The process of actually making a budget is incredibly easy, I like to break it down into three simple steps:

1. Calculate your income and your expenses
2. Determine your priorities
3. Decide on exact percentages

Calculating your income and expenses:

Again an easy process, simply calculate your monthly income and your monthly expenses and then subtract the expenses from your income, we will call this our “surplus.” Hopefully the number that appears on your calculator is not a negative number because then you have a “deficit” but if it is you either have to cut some expenses or make more money. If you do not have exact numbers for your monthly income and expenses simply take the last six months worth of income and then find the average and then do the same with your expenses. Now that you have your surplus you are ready to move onto the next step.

Determine Your Priorities:

This is when some of that cutting might come into play, if you’re monthly number was negative you are going to have to decide on something to cut or make more money, if you do not want to cut anything out/can’t cut anything out than checkout my post about making extra money from a side hustle

In this step you also need to consider if there is anything you are going to have to save for such as a new car, phone, tires, rent, or anything else that would require saving for. If you know you need a car and that you need to start saving for it then mark it down as a top priority. Deciding on priorities greatly affects step #3 and is an important aspect to any budget.

Decide on exact percentages:

Now that you have a list of priorities and have found your surplus it is now time to actually divide your surplus and decide where it is going to go. A common place to start is a 50/30/20 = 50% for necessities, 30% for savings, and 20% for wants. I also highly recommend investing if your income allows it (tip: you can easily invest with $20-$30 per month) and if you decide to invest, alter the percentages accordingly; also checkout my post on the basics of investing for teenagers. A good place to start for investing is 15%; however this amount needs to be tailored to what you can afford. using myself as an example: I don’t spend very much on wants other than eating out a few times per month so 20% for wants is way too high, 50% for necessities is also high for me so I take 10% from necessities and 5% from wants making my budget a 40/30/15/15 = 40% for necessities/expenses, 30% for savings, 15% for wants, and 15% for investing. Although this budget works for me it does not mean that it will work for you so please take my examples and adapt them to fit your needs, generally however I would recommend staying as close to the 50/30/20 breakdown as this allows you to spend some of your money on fun things and wants, while still saving a large portion of your income.

2. Managing The Budget

Managing your budget is not very complicated especially with the apps and programs available today. here are a few of the best ways to keep track of and manage your budget:

1. Use a budgeting app such as YNAB (You Need A Budget), Mint, Wally, or one of the many other apps available. These services will automatically connect to your bank accounts, investment accounts, debit cards, and credit cards to update you on your spending and saving. Most of these apps also allow you to set goals and budgets for each individual category such as: $80 for gas this month or $175 on groceries for the month. Some of these (such as YNAB) are a subscription service that charge you monthly for access to the software, however Mint and Wally are both free and there are many free options available.
2. Go the old-fashion route and use Excel or Numbers (Numbers is the Mac version of Excel.) While these take some getting used to it is fairly easy to learn how to use these forms of software
3. Use the envelope system. basically after you pay off all of your necessary bills such as: rent, water, electric, insurance, etc. take the remaining categories like: food, entertainment, clothes, etc. and assign each envelope one of these categories. once you have all of your envelopes calculate the amount of cash you need/want for each one and put it in the envelope, once the money is gone that’s it you are done spending money in that category.

Managing your budget may seem like a chore, but with some patience and practice it can actually be fun and feel good to know where all of your money is going and that you are becoming healthier financially.

3. Adhering To Your Budget

Maintaining and adhering to a budget can be difficult, but I have a few tips to help you never break your budget or lose track of your money.

1. Set realistic goals to stay motivated. this could be something as simple as trying to reduce your “wants” percentage by 5% for a month or trying to reach a certain milestone number for savings such as $1,500 in the bank by this day next year. These goals will help you follow your budget and turn it into a game that can actually be quite fun. I definitely fixate on my budget much better when I have a goal in mind.
2. Check your budget multiple times per week/month. This will depend on the person, but I find I am much more motivated to stick to my budget when I actually see the numbers and know where I stand, this also helps me know when/if I will have some extra money that I can spend on something or add to my savings.
3. USE CASH MORE! Using cash and actually having to hand someone else your money when you buy something hurts a lot more than swiping a piece of plastic. If you do not like cash or it is simply unrealistic to use, try checking your account balance every time after you swipe your card so you see how much money you actually spent.
4. Convert the price of things into the amount of hours of work it would take to purchase. For example: if an iPhone case costs $20 and you make $10 per hour, don’t think about it costing $20 dollars, instead think about having to work for two hours only for a phone case.

Congratulations!

You now have a fully functioning budget that will allow you to monitor your spending, saving, and investing habits. Knowing exactly where 100% of your money goes is an amazing feeling and a great habit to form at a young age that will help you advance other areas of your finances as well. If you start budgeting as a teen you will be far ahead of almost everyone your age and a large portion America.