As a high school student, your first instinct when you receive money is to spend it. Earn, spend. Earn, spend, Buy. Spend. Earn. Spend.
But how long can your allowance last with this tedious cycle? Not long. After all, debt accumulates much more rapidly than a high schooler’s ability to pay. Think about how many times you go out for food with your friends or how often you shop. Sure, these activities are fun and seem harmless, but how do these expensive habits translate when you enter the real world? How will you survive when you can no longer depend on your parents for money?
Understanding how to effectively budget, save, and establish credit will help you be a smarter spender in the long run. The ability to understand budgeting, saving, and credit is referred to as financial literacy. The stronger your financial literacy, the better you will be able to understand how to make wise financial decisions.
Step 1: Budgeting
One of the fundamental pillars of financial literacy is budgeting: the ability to allocate money based on expenses and income. In order to create a budget, you need to know your income and expenses.
Your income is the amount of money coming in. When determining your income, you factor in your wages (if you have a job) or any money you receive in the form of an allowance, birthday money, etc.
Once you determine your income, you need to assess any expenses you have. Expenses include bills, gas, clothes, food, going out with friends, and any other payments that month.
There are two types of expenses: fixed and variable. Fixed expenses remain the same each month. Examples include Netflix subscriptions, gym memberships, rent, and music. Variable expenses, however, alter each month. Examples include groceries, eating out, gas, and clothes.
Step 2: Saving and Managing
With so many expenses to account for, the task of budgeting may seem daunting. A crucial part in determining how to manage your money, though, is to differentiate needs and wants. Essentially, needs are food, clothing (to a certain degree), shelter, gas, electricity, and insurance; wants are everything else.
It may also help to make a spreadsheet of your income and expenses for each month, so you can have a visual of what you should be putting your money toward. More tips on how to budget and save your money can be found at Better Money Habits by Bank of America.
| January | February | March | April | May | June |
Gross Income | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 |
Subscriptions (Netflix and Music) | $20 | $20 | $20 | $20 | $20 | $20 |
Groceries | $50 | $45 | $40 | $50 | $37 | $50 |
Clothing | $50 | $0 | $15 | $0 | $0 | $0 |
Gas | $200 | $150 | $150 | $140 | $155 | $175 |
Gym Membership | $10 | $10 | $10 | $10 | $10 | $10 |
Going Out with Friends | $40 | $20 | $10 | $25 | $30 | $45 |
Savings | $200 | $200 | $200 | $200 | $200 | $200 |
Total Left | $630 | $755 | $755 | $755 | $758 | $700 |
*Note: This chart is an estimated example of a budget tailored to the life of a teenager with a job.