Teens don’t think too much about finances. They think about money, sure, but finances and budgeting? Not so much! But they should. And they should be taught about money coming in and money going out. A lot more people could live debt free if they learned about money sooner.
So how do you begin?
Dave Ramsey is a wealth of knowledge when it comes to budgeting and getting out of debt. His website, DaveRamsey.com, offers all kinds of information about money. And he also has a podcast covering money and debt.
Back to budgets. According to DaveRamsey.com, start by writing down your total income for the month. If your income varies, then take the average and start there.
After writing down your income, then you need to give every dollar a job. List all of your expenses and deduct them from your income. This should leave you with some excess money, for savings, investing or spending. If you don’t have any excess money after bills, you should think about deducting some things from your life, making more income or accepting the fact that you most likely will start accruing debt.
When listing your expenses, make sure to include everything from your mortgage or rent, to groceries, to your electric and gas bills, car insurance, gas and subscriptions.
After deducting all of that, make sure you also deduct money for savings, investing and for spending. Don’t forget to include things such as entertainment, dining out and “fun” money, which would be used for nonessential items. After months of budgeting, you’ll get a better feel for how much money each category needs.
After deducting all of that, your income and expenses—including savings, investments and spending money—should equal out to zero.
Dave Ramsey’s free app, Every Dollar, helps to see all of this and account for all expenses. You also can access it online. The nice thing about this app is that you’re in control. You can change your income from month to month if your income isn’t steady, and you can copy the information from one month to the next. If in the middle of the month, you decide to swap some money between categories, it’s easy. Just make sure you haven’t already spent that money. This works if you use cash or credit cards.
If you’re not into using apps, you can use the envelope system. This system works for cash-only people. You use envelopes for each expense you have. When payday rolls around, you get money out of the bank and fill up your envelopes with each amount allotted for each category. This helps for people who overspend.
The key with setting a budget is sticking to it. Using cash only is the best way to stop yourself from overspending, but it’s not always realistic in today’s age. It boils down to willpower and making sure you’re checking your finances, bills and budget regularly to make sure you haven’t overspent.
Along with budgeting, it’s smart to have an emergency fund in place for things such as car repairs, home repairs, illnesses, unexpected party invites (meaning unexpected gifts you now have to give) and anything else that may come up that you weren’t expecting—looking at you doctor’s appointments! Depending on your budget, $1,000 is a good starting point for an emergency fund. If your income allows for adding to it each month, then do that. The key is to replenish it if you must borrow from it.
When it doubt, always save when you can. No matter what, you should always bring in more money than you give out.