As a teen, you may think that budgeting isn't important because you only have a part-time job or your only income is from chores or babysitting jobs, however, the less money you're making, the more important budgeting becomes. Getting into the habit of tracking your spending and budgeting now will help you as you begin to build your own financial future. David Sant from Cyprus Credit Union stopped by with the following information for building a budget into your Teen Financial Toolkit.
Before starting any budget, you need to know exactly where your money is going. These should be divided into two separate groups: fixed expenses and variable expenses. Fixed expenses are costs that stay the same and you are paying on a consistent basis, such as a car payment. Variable expenses are costs that vary on how much they cost each month, such as going out to dinner.
Set goals when you are planning on your budget. These goals can then be separated into two categories: short-term goals and long-term goals. Short terms goals could be saving up to buy a new laptop while a long-term goal could be saving up for college. These goals will help dictate what your priorities are and help you craft a budget centered on them.
Choose a Method
There are several different ways that you can budget your money. Picking the option that works best for you will give you a greater chance at budget success. Four of the most popular forms of budgeting are:
• The Envelope Method:
o A cash-based method where you set aside a portion of your income in separate envelopes to cover a variety of expenses.
• The Zero Based Budget:
o This method has the goal of thoughtful spending. Every cent is accounted for. Whether it`s being used to pay bills, going into savings or used for expenses, you should have zero dollars left over at the end of the month.
• The 50/20/30 Rule:
o With this method you split your expenses into three different categories following 50%, 20% and 30%. No more than 50% of your net pay should be used for essentials. 20% should be put towards paying down debt or building savings. 30% can then be used for the extras.
• Electronic Budgeting:
o If you need help tracking a budget, apps are a great alternative to more traditional methods. Some apps can track your spending for you and then help you build a budget. Once you have a budget in place, the app will keep track of how much money you spend in each.
Trial and Error
The purpose of a budget is to make sure that your money is going where it`s supposed to go. If your current budget or the method you`re using isn't working, try something new. It may take a few months to figure out what works best for you.
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