Money management is a life skill that every person needs. Showing your kids how to budget for teens sets them up for success.
Trust me, it’s easier to learn the basics of budgeting before you have multiple obligations, which is why it’s important we teach our kids how to manage their money before they head out on their own.
Show your middle schooler that by paying attention to where their money comes from and where it goes, they will control their finances, not the other way around.
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Why Budgets Matter
Did you know that according to a Gallup study, only one-third of American families prepare a monthly household budget, while all Fortune 500 companies create and follow one. In fact, companies traded on the stock exchange are required to prepare income and expense statements to share with their stockholders on a quarterly basis. It’s common knowledge that many families are living paycheck to paycheck. Encourage your teen to follow the example of successful businesses by learning how to budget their money.
When our family went through Financial Peace University, one statement that stuck with us was that “every dollar has a name.” That means if you don’t take control and plan how you will spend your dollars, they will get names like Starbucks, McDonald’s, movie tickets, etc. Trust me, every dollar goes somewhere. Will it go toward your financial goals or get wasted?
Creating a budget is a tool to keep you on track with your financial plan, not something that prevents you from spending your money. Hands down, a budget is the best way to take control of your money.
How to Budget
For any basic budget there are two key components – income and expenses. When your income is greater than expenses, it simply means that you are making more money than you are spending – this is good. When your income is less than your expenses, you are spending more than you make and living beyond your means, or living on borrowed money and increasing your debt obligation.
- Income is any money that you receive. For teens, this can come from an allowance, money from holidays or birthdays, a small business they’ve started, or a salary from a traditional job.
- Expenses are anything you spend money on. Things like gas, outings with friends, clothing, and fast food are common expenses for teens.
When your income is greater than your expenses, you create breathing room. When it’s the other way around and you are living beyond your means, you create stress.
When you have a regular income and expenses, creating a budget is pretty straight forward; however, often our teens don’t have a regular income so it may take a bit more planning. You may want to have them budget each time they receive money, or you can help them plan for a whole month. Let’s take a look at what a typical month may look like for a teen. We’ll break it out by week so that you can see the irregular income and expenses, but how taking a holistic view of the month helps.
Sample Teen Monthly Budget
Let’s say that Sarah, our teen, received $35 for babysitting in the first week of the month and then a $25 check from her grandparents for her birthday the last week of the month. Notice on the image below that the money from babysitting (see #1) and from her grandparents (see #2) has been entered as income (money she received).
She is planning on going roller skating with her friends the third week of the month which costs $8 and she’ll want to buy some food there for another $8. The money for roller skating and snacks (see #5) are entered as expenses (things she spent her money on).
Her parents encourage her to give some of her money to charity and to save a portion too. You can see by looking at charity (see #3) and savings (see #4), that she is targeting 10% for each.
Currently, she has a favorable budget as her income minus her expenses is positive.
The goal of budgeting is to have a zero based budget. That means you’ve accounted for every penny coming in, whether you put it toward giving, saving, or spending. In the example above, Sarah has a favorable budget with $32.00 not currently being assigned to anything specific. She should add more expense items until her income minus expenses equals zero. She can do this through a combination of increasing her savings, charity, or setting aside additional money for unplanned spending during the month.
An Easy Way to Start Budgeting
Before sitting down to fill out a budgeting spreadsheet, make sure you and your teen have a clear understanding of what it means to be a smart spender. Keeping a spending journal is the crucial first step to setting up your initial budget. It’s hard to know what to put aside for various things if you have no idea what you’ve been spending.
Make your first budget a practice one to learn the process. It’s an easy way to begin without emotions.
Common Budgeting Questions
- My teen doesn’t currently have any expenses. Should she still learn how to create a budget?
- Yes, she should still keep track of where her money is going to make sure she is taking control of the income she does have (even if it is just birthday money). As I’ve shared before, I think it is important that you start having her pay for things with her own money now, so she can start building the habit.
- But my teen doesn’t have a regular income.
- What happens if your income is less than your expenses?
- You are living off borrowed money. It is crucial to increase your income or find ways to decrease your expenses. If your teen wants to make more money, here are 50 Fantastic Ways for Teens to Make Money.
Teach your teen how to take control of their finances by setting up a budget. Learning this life skill will set them up for success for years to come.
Plus, it’s an excellent real life math project for middle school.
Important Personal Finance Fundamentals Teens Need to Know
My husband and I have put together some other things that we are doing in our family to make sure our girls become financially literate – personal finance fundamentals. We hope you’ll read along and share your experiences with us as we give you a glimpse into our lives.
- These money board games make personal finance fun.
- Teach your older kids about money management. You can also add these fun activities about money to your lesson plans.
- Teach Your teen the power of saving.
Additional Budgeting Resources:
- Budgeting Smarts: How to Set Goals, Save Money, Spend Wisely, and More
- Official Money Guide for Teenagers
- Review of the Budgeteer Notes App
- Why Didn’t They Teach Me This in School?
- Fun cash envelopes for teens to use to budget their money.