Money management for teens and high schoolers

March 20, 2020

In this article, you’ll find very solid principles and ideas about money management for teens and high schoolers.

As a teenager myself, I just didn’t receive much financial advice (besides don’t spend too much!) and I wish I had. There is so much you can do when you are young, the ways you can set up your financial life for success.

The reality is, the earlier you start, the better, now is the best time to learn how to manage your money as a teenager and put it to practice as soon as you can.

Moreover, in 2020 there are so many options open to you and so many tools we did not have 10 or 20 years ago. Managing successfully your money with the help of these tools and with the right advice is going to be a breeze.

We’ll be covering so much ground in this guide, we’ll talk about concepts, tools, strategies, howtos to set you off a life long journey of self-education and experimentation in the world of money management. Buckle up!

Step 1. Learn to enjoy saving money

The one thing I was taught when I was a teenager was to put money aside for a rainy day, purchase things with cash when possible leave no debit behind. This is all great advice even though it doesn’t paint a complete picture. But we’ll talk more about that further down.

The main point is that learning how to save money as a teenager is mostly about your mindset and it is one basic skill you should develop as soon as possible. There are many ways to save money and this is not the right post to explore them all. We have actually published a post listing several clever ways to save money.

Just to kickstart your money-saving behavior, here are a few powerful pointers:

Changing your mindset – Saving, I think, is more about realizing what you need vs what you think is desirable. Most things we end up purchasing we don’t really need. Do you really need the latest model of iPhone or can you do just fine with a two-year-old model? Do you need a car or maybe an electric bike would do nicely for your transportation needs? Re-evaluate your spending habits and act accordingly to reduce your expenses.
Delay leaving your family home – You are in a stage of your life where you can save a lot just by keep living with your parents if suitable. I’d argue that at a certain point you might want to start to contribute to the financials of your family, at least to show you are chipping in. The reality is that not having to pay for rent and utilities will save you a huge amount over time which you can then use to your financial advantage.
Focus on quality of life – What are the things to spend money on as a teenager? Don’t make the mistake to skimp on essential things such as food, hygiene or education. Instead, invest in activities that improve your mental and physical health and reduce wasting habits and behaviors.

Step 2. Prioritize spending

If you have decided it’s time to move out of your parent’s home and go live on your own, you’ll be hit by what might seem an overwhelming number of fixed and recurring expenses. The truth is that getting to manage efficiently these, can be tricky initially. This is where a lot of bad spending habits form precisely because of such initial difficulties.

The idea behind the principle of spending prioritization is simple, create a list of items from the most to the least critical and spend your monetary resources accordingly. Circumstances are going to be different for each and every one of you, however, let’s have a look at the main expense categories you can expect to face right off the bat and the best order you should be tackling them.

Housing (30% of your income)
Utilities and other housing expenditures (10% of your income)
Food ( 15% of your income)
Transportation (10% of income)
Debt repayment (student loans and credit cards, about 10%)
Saving (10% of income)
Discretionary such as clothing, entertainment, etc (about 15%)

Put simply, you want to stay on top of fixed expenses such as utilities and rent and manage the variable expenses accordingly. Each month you want to:

Pay rent and utilities on time and on the due date, no point in giving away your money before. At the same time, you do not want to incur late fees. You can set up with your bank automatic repayments from your account so you can be, mostly, worry-free and pay everything on time.
Repay any outstanding debt such as credit card or student loan.
Pay the monthly fee for your health insurance. You’ve got to have one, it’s a no brainer.
Set aside a portion of your income into an emergency fund. You want to have from 6 months (I personally prefer up to a year) worth of living expenses in your bank account in case something catastrophic happens. It doesn’t take much to build and creates so much freedom and confidence knowing that you can take time off things if you need it.
Set aside a portion of your income into a high yield, saving account. We’ll talk about investing more further down but, essentially, the earlier you start putting your money to good use the better.
Allot whatever’s left for lifestyle. Food, entertainment, clothing and anything else fits right here. And remember, even if this is the last item on the list having fun is most important so, have it!

Start investing

In this mini-course about money management for teenagers and high schoolers, it is now time to talk about how to put money to good use and not just saving it. What I never received solid advice growing up, was the importance of understanding the power of investing as early as possible. As a teenager, I know, you might have other priorities but I wish I had known then what I know today!

Nowadays is so simple and convenient to start investing it’s almost silly not to. Before giving you a few simple pointers and tools, let just reiterate how important can be to start investing as early as you can. At a minimum, you do not want your hard-earned money to waste away into a low yielding cash account which gives naught interest. Which tasks us to our first obvious option:

Set up a high yield Savings account

Yes, the simplest, most accessible and easy way of investing is to set up a savings account! The plan here is to search and find the best interest you can.

Credit unions or online-only banks, for example, tend to offer better interest because they have fewer overhead costs. So don’t be afraid to go hunting for a great deal and don’t be afraid to change bank or renegotiate with your bank should conditions change over time. You won’t get rich anytime soon with this but better than a kick in the groin.

Use the Acorn App to automatically invest leftover money

The next best option to start investing nowadays is called micro-investing. Investing is daunting, no shame admitting it, but there are alternative solutions.

Acorns is a micro-savings app. Every time you purchase something, the App, which is linked to your credit card and bank account, rounds up your purchases to an even number and invests the difference for you.

For example, say you have purchased a latte for 4.5$ and paid with your card. The App will pull 0.5$ from the card and invest that amount according to your preferences. As you can imagine these small amounts can add up quickly over time and without even realizing you’d have an investment portfolio built up out of seemingly thin air.

Now, there is so much more to Acorns that we can go through in this post however it really works in reducing the friction there is into start to invest. You should definitely check it out.

Step 3. Learn to budget

There is no money to be saved or invested if there is no money whatsoever, right? The best way to make sure you’ve got money left after the fixed expenses have been taken care of is to do a bit of budgeting.

Budgeting is so important in so many ways that I think I am going to dedicate a full post to it. In a nutshell, budgeting allows you to do two main things, 1. track your expenses and 2. come up with a plan to use your income more effectively.

Say you want to save for a big purchase item or for a down payment for your car or motorbike. Whatever it is, with budgeting you can work out how much you need to save for how long to get to your financial goal. You can see where you can take resources off and how to reallocate them. It’s just a great tool.

I honestly think that in time and with more experience you might not need to budget necessarily to manage your expenses but it’s a fantastic learning tool to get a solid grip on your finances and it’s definitely necessary if you want to manage a more complex financial situation such as a small business, for example.

I have been using an excellent and simple free app for recording my expenses, but the technology you decide you use is irrelevant. Whatever you do it must be something you love using on an everyday basis. If you want to go the hands-off route you can try using mint.com, which allows you automate a lot of the process for you and it’s basically free to use for its most important functions.

Step 4. Open your first bank account

You should be doing this as soon as you can, in fact with the help of your parents or advisors you should do this early so you have time to research and understand banking a bit more before you are thrown into the world. Don’t fret though, in its essence banking for you is going to come down to:

Get a 0 fees bank account with a reputable bank. Good choices here could be Credit Unions or smaller banks which are probably going to provide a more personal customer experience.
Set up a cash account and a savings account. The first is for live expenses and everyday usage and provides marginal or no interest. The Savings instead will provide a decent interest and you should plug there your savings.
Set up an emergency fund. Now, this could be a portion of your savings account or some form of no-risk investment that gives you immediate access to the capital should you need it.

That’s it, this is all there is to it now go and do it.

Step 5. Get a credit card

Applying for a credit card when you reach the age requirement has its advantages and drawbacks. It allows you to start building your credit score together with a student loan, for example, but it can also initiate a bad relationship with debit.

The most important thing to remember is that a credit card is not a cash or credit account and should not be used for everyday expenses unless you are prepared to and diligent at repaying the full balance every month. If you lose track of repayments the consequences can be disastrous.

Like all tools, if you use them correctly they can work wonders for you and the opening of a line of credit can give you a lot of options with regard to your financial decisions and opportunities.

So what should you use the credit card for then?

Use the credit card to invest in assets, not in liabilities. No point in using someone else’s money to purchase things you can’t really afford, consequently use it for things that are necessary to your long term betterment and that will likely increase your chances of improving your financial situation. Buying a transportation device, for example, is essential if you need it for work and there is no other way to reach it. On the other end, it is just liability if you just use it for fun.

Also using credit to further your education, mastering a life skill or starting a new business is usually a very good idea.

Set up automatic balance repayments. This is a nice trick but you can set up automatic balance repayments from your cash account to your credit card account. You need to be vigilant you have enough in your cash account when due date comes around to cover for the credit card expenses but it’s a way to not just forget about it.

Step 6. Start a business or get a side hustle going

In my humble opinion, this is a great time for you to start a small business. You have plenty of free time, not much to lose and limited personal responsibilities and starting a small business or a side hustle, it’s the best way to learn more about money.

You can offer a service or create a small product. There are so many possibilities and on this website, we have explored several already and created guides for you to follow. You could, for example, leverage Fiverr, or you could create a Skillshare class or start selling on eBay to earn extra income.

Whatever you decide to do I believe trying your hands at a money-making activity at this stage of your life is going to provide invaluable real-world experience and boost your self-confidence.

Never stop educating yourself about finance

We are at the end of this mini-course on money management for teenagers and high schoolers and if you have made it to the end, kudos to you, it means you want to take control!

If you take away anything from this Id like to be the fact you need to invest learning about money and that is going to be a rewarding life long journey. Obviously, there is so much more you can learn on MoneyBlossom but it doesn’t mean your journey should end here. Think proactively about it, take a class about this subject be it online or offline. Do whatever it takes to become well educated about money and your options managing it. You ‘ll never regret it.