Budgeting Tips for Teenagers

Managing money better for teens
April 10, 2021 by Stuart Smale

You’re never too young to start thinking about money – especially when it comes to building those responsible habits and practices that can benefit your life further down the line. While many young people go into the world with little money knowledge, a little bit of extra time spent on finances can go a long way towards preventing the all-to-tempting pitfalls of store cards, credit and loans.

Whether you’re a teenager looking to start on the right foot with your finances, or a parent hoping to instil a better understanding of money into a younger teen, these budgeting tips are a great place to start – and a great way to get into practice for future financial freedom:

Focus on creating a spend-save balance

Impulse control can be an issue for anyone with money – but for teenagers, with the brand-new freedom of having cash in their bank accounts, the urge to spend every penny can be even stronger. That isn’t to say you shouldn’t spend any of the money you have coming in, but focusing on creating a good balance between saving and spending can set you up well for future finances.

Many financial services utilise the percentage method – where 20% of your income is saved, 30% is for ‘fun money’, and the remainder goes on essential spending like rent and bills. For teens without the responsibility of paying rent or keeping the lights on, this percentage could be more of a 50-50 split. Or potentially, paying for their phone bill or even a small amount of rent each week could fall under the essential spending category.

The purpose of this kind of split budgeting is to get into the habit of reserving money for specific things. There’s probably not a single person reading this that hasn’t accidentally overspent and needed help at some point in their lives to cover necessary expenses. But learning that balance early can go a long way towards reducing those instances and ensure better financial practices in the future.

Understand how income and expenses work

For many people, it takes moving out and going it alone to understand the full extent of the UK’s income and expenses system – which can come as a nasty shock to many. Teenagers earning cash of their own for the first time will soon learn that what’s written in your contract isn’t actually what you receive each month – but before they reach that realisation, it’s easy to overspend or misunderstand what you’ll actually be getting.

Sitting down and going through how taxes, student loans and national insurance works is a great place to start. As clear-cut amounts that are removed from each paycheque, it’s easy to calculate how much you bring in with a little maths or the use of an online calculator. With a clear idea of actual income, creating a budget is a far easier task.

While you’re at it, it’s also worth going over other obligatory expenses in the UK that you may not have much knowledge about. Things like council tax, TV licenses and even self-employment taxes are all critical, required payments that teens will need to understand and account for once they move out on their own. Having an early understanding can help older teenagers be prepared for what real-life finances look like – and even plan long-term budgets ahead of time.

Know your expenses

Even as adults, there are people out there who wing it when they come to their expenses – and often end up far worse off for it. Knowing your costs is the foundation of a budget, and without the knowledge of what’s going in and coming out of your account, no amount of good intentions will help you make better financial decisions. The most natural place to start is with pen and paper, or blank excel or google sheets pages to jot down everything you can think of, and go from there.

Once you’ve written down absolutely everything that goes out of your account regularly – think subscriptions, gym memberships, phone bills or anything else – you can then add on other irregular expenses that frequently crop up. That could be nights out in town, buying new clothes or going to the cinema. In a separate list, write up all those irregular expenses alongside their average cost, and you’ve got a full list of everything that comes out of your income.

Projecting your expenses is valuable for several reasons: firstly, it lets you know just how much you have leftover to spend and save. Secondly, it gives you a better handle on expenses you may not even know you had – for example, subscriptions that you don’t even use or memberships you forgot to cancel. Simply jotting down your expenses could potentially save you hundreds a year, as well as giving you more control over your money.

Create a budget where all your money has a purpose

One of the most popular methods of budgeting is the envelope method – and can be hugely successful for teen finances if you do it correctly. But even if you don’t want to be hugely strict with your money, giving it a job is a great way to ensure all your expenses are covered before you start spending. By giving your money purpose, it isn’t disappearing without you even realising it.

The ‘jobs’ that you give your money don’t necessarily all have to be serious things like bills and proper expenses. Budgeting in money for clothes shopping, to save towards a holiday or for a couple of nights out a month is just as important and valid to budget as your rent or monthly music subscription. By planning, you can easily prevent yourself from falling behind when it comes to the income-expenses balance and save yourself a whole lot of stress in the process.

A budget doesn’t have to be an exact science, and it can take a couple goes for it to work for you properly. But generally understanding where your money is going, and how much you need for your expenses, is an excellent first step. From there, you can build up those good habits, and have a lifetime of better financial security than ‘winging it’ could ever provide.

Don’t be afraid to seek advice

Money is complicated, whether you’re thirteen or thirty. So you may need a helping hand in getting your budgeting started, understanding how money really works or simply getting to know the financial terms used by banks and services. If that’s the case, don’t be afraid to reach out and ask for help. There are plenty of free services in the UK, such as the money advice service, that provides details information about money.

Speaking with a parent or teacher may also be an option – but there’s also plenty of help available online. There are thousands of budgeting videos and guides on blogs and YouTube, as well as other forms of social media. There are whole budget-based communities online too, on platforms like Reddit, for teens over the age of 16.

If you go searching for it, there’s plenty of financial advice out there. You don’t have to go it alone – and once you’ve got the basics down, there’s plenty of options to pick from for your budgeting anyway. Some people prefer to use paper-and-pen notebooks, while others opt for spreadsheets. There’s even a whole host of different budgeting apps available for your desktop or smartphone to make the entire process even easier.

Regularly check your finances and update as needed

The key to successful budgeting is making it a habit. You don’t want to forget about your budget once it’s been created, as maintaining it is key to keeping track of your finances. Online banking can provide a fast and easy way to check your bank balance instantly, and if you get into the habit of recording purchases as you make them, all the better.

One way to get into good habits is dedicating one hour a week to your budget, whether it’s tweaking it, updating it or starting fresh. That way, you’re never out of the loop on what cash you’ve got handy – and you won’t be caught short on a night out or in a shop again. Stay up-to-date, and success is far more likely in the long run. It’s a bit of a slog, but it’s more than worth the results.

Everyone messes up – so don’t be afraid to start again

No-one’s perfect, and that’s especially true when it comes to money. Temptation is everywhere, and it’s easy to think you’ll build those savings back up if you spend them on something today. The odd slip-up is human. But the important thing is getting back up, starting fresh and getting yourself back into budgeting mode. You never want to give up on your budget, because that’s a quick way for your cash to disappear.

Practically every adult you know has messed up their finances at some point – so cut yourself a little slack, get back on the horse and start over with a new, clean sheet. If you find yourself falling back into bad spending habits, a budgeting reset might be just what you need to get your brain back in the zone.

Whether you’re just thinking about money or you’re trying to get a better handle on your spending with your first job, starting to budget at a teenager is the best thing you can do. While full-time work and mortgages may seem a long way off, putting the steps in place now can make it a far easier path in the future – and save you all those money headaches once you move out.

Is the managing director of Cobra Payday Loans and Ready Money Capital Limited. He is responsible for all the day to day functions and performance of both companies and regularly contributes information on the short term finance sector. Stuart is an approved person with the Financial Conduct Authority, holding SMF3 (Executive Director) status.

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