4 Tips to Help Teenagers Set Successful Financial Habits

dollars in a pile with the word money in Scrabble letters

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:

  1. 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.
  2. 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.
  3. 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. When it comes to buying checks I look to www.personalchecksplus.com for special internet deals that save me even more money.

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 Jason Monroe was no stranger to financial woes as a teenager, and often uses his own experiences as inspiration for writing tips to help today’s teens avoid the same types of problems. His articles cover all kinds of tips and advice, from saving to buy their first car to finding free personal checks online. When he’s not writing, Jason is a regular outdoor adventurer and enjoys hobbies such as mountain biking and hiking with his pals.

Earnest Parenting: help for parents who want their teens to use money wisely.

Image courtesy of 401(K) 2012 via Creative Commons license, some rights reserved.

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