May 28, 2004
Get a Grip on Your Money
Introduction
One of the most valuable lessons a teenager can learn is how to handle finances. Learning financial planning basics such as making a budget, saving for short- and long-term goals, and avoiding debt will lead to a solid financial future and greater chance of achieving your dreams.
Control Spending with a Budget
The first step in planning is to create a budget.A budget will help you determine your current income and expenses.Income is the money you make from different sources. While you are a teenager, your income will probably be wages from a part-time job or an allowance from your parents. Expenses are itemson which you spend your money. Teenagers typically spend money on such things as going to the movies, new clothes, eating out and maybe even a car payment.
Subtract your expenses from your income. You should have a positive balance. A positive balance means your income is more than your expenses. If you have a negative balance, youare spending more money than you earn. This means you are spending money you do not have, which could lead to Debt problems. A budget will help you control your spending.Keep a record of everything you spend for a month or two. You might be surprised to learn just how much you spend on junk food!
Setting Savings Goals
You need to set goals to be sure you are spending your money on the items youwant. Setting goals forces you to make choices. You should have short-term goals such as saving for a stereo, sports equipment, or tickets to a concert. You should also have long-term goals like saving for a car or college.
After setting your goals, you need to develop a plan to achieve them. Look at your budget to determine what is necessary. For example, you can bring your lunch from home one day a week instead of going out to eat. This could save five dollars a week. Although this does not sound like much, five dollars a week adds up to $260 a year.This is the price of a stereo. If you invest that $5 earning 8% a year, then that five-dollar hamburger would be worth $3,683 in ten years! If you continued saving a hamburger a week for the next 50 years, you will have accumulated $158,635!
Dangers of Credit Cards and Debt
Too many young people get into trouble with credit cards. Instead of saving to purchase something they want, many people borrowthe money. Borrowing money results in debt. Debt results in paying interest. For example, you take a trip to Europe that costs $1,500. Instead of saving the money to pay for the trip, you charge it to a credit card. If you only pay $50 a month toward the credit card bill, it would take you three years to pay off the debt. You would also pay over $400 in interest. If you made only the minimum payments, it would take you 17 ½ years to pay off the debt and you would have paid over $1,800 in interest on a $1500 purchase!
It is important to remember:You should not charge anything you cannot pay for that month. If you get into trouble paying your credit cards, you could damage your credit rating. Prospective employers and banks check credit ratings. Delinquent payments on credit cards show irresponsible behavior. It could prevent you from getting a job or a loan for a car.
Conclusion
It is important to learn good money management at a young age. The good habits you develop as a teenager will continue as an adult. Being able to stick to a budget, set and achieve savings goals, and stay out of debt demonstrates self-discipline and responsibility. Good financial planning paves the way to a sound financial future and a happier life.