Budgeting is a skill that will benefit you throughout your life, if you learn to do it correctly. Millions of Americans are currently in debt, but you don’t have to be. With the right knowledge, you can avoid years of financial struggles and manage your money wisely.
Fundamental Finance Academy is devoted to financial literacy for all ages. Focus on learning these budgeting concepts and how to apply them at this stage of your life, and you’ll be well ahead of the game:
Keep a Spending Journal
Have you ever looked at the balance of your bank account and wondered where all of your money went? Money has a tendency to burn a hole in your pocket if you don’t keep a close eye on what you’re using it for. The best way to become aware of your spending habits is to start logging every penny you spend in a journal of for at least a couple of months — jot down everything you buy, where you buy it, how much money you spend on it, and the date of the purchase. After some time goes by, review your purchases and organize your entries into two categories: “Things I Needed” and “Things I Didn’t Need.”
In the “‘Things I Needed” category, highlight unavoidable purchases, such as “car payment,” “gasoline,” “cell phone payment,” and so on. In the “Things I Didn’t Need” category, include everything you spent money on that you didn’t really need, like “concert tickets,” “phone apps,” “headphones,” etc. Many times, when you monitor your spending, you’ll end up saving money by realizing how much stuff you’ve been spending money on that would be better saved or invested.
Think Out Your Purchases
When you give in to impulse buying, you can quickly end up broke as a joke. Even if you need to buy something — say your only pair of sneakers has holes worn in the soles, and you can feel the pavement when you walk on it — don’t just run out and buy the first pair you see. Do research first. Is the store that stocks your favorite pair having a sale anytime soon? A number of shops schedule sales for the end of every season. Or, can you get a discount if you buy the sneakers online? What about checking into other shoes that have the same features and look just as awesome but are less expensive? Remember that smarter spending often ends in savings and getting more for your money.
Create a Simple Savings Plan
There are so many ways to save money, even if you don’t earn that much to begin with. Making the decision to do things like bring lunch to school or work, instead of buying it from a restaurant, or opting to hang out at a friend’s house instead of at a diner or cafe will inevitably add up to more savings over time. After playing around with creative ways to cut back on your spending, pick a reasonable savings goal to aim for each month, be it $15 or $500. Down the line, your savings will translate into paying for some major needs, such as tuition, a car, or even moving to your dream city.
When you start saving on a regular basis, it’ll make sense to put that money into a savings account, which will help you grow your savings over time by keeping it safe and having it compound interest. Different savings accounts pay different interest rates, so if your account pays 3.5% interest and you have $1,000 sitting in there, you’ll make $8.75 in the first three months; the next three months, you’ll make 3.5% interest on the $1,008.75, meaning your account will be at $1,017.58 six months down the road. What better incentive to save than to earning money without working for it. Plus, with your money in a savings or investment plan you’ll be far less tempted to use it up than if the cash were sitting in your dresser drawer.
If you would like to learn more about how to manage your finances and become financially literate, sign up for Fundamental Finance Academy’s financial workshops — especially our high school workshops, which are just for teens. It’s never too early to learn tools that will greatly improve the quality of the rest of your life.