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Have you ever wanted something that your parents wouldn't buy for you
and that you didn't have the money to buy yourself? Say, new clothes,
concert or ball game tickets, or a MP3 Player? Or have you imagined owning
a computer or a car? Having a savings plan and a budget can help you save
for both short-term financial goals (like buying a computer) and long-term
financial goals (like saving for college).
Some people think of budgets as denying themselves stuff they want. But
the opposite is actually true. Sticking to a budget means you waste less
money on little things you hardly notice, like gum or soda, and save more
for the bigger, important items you really want.
Creating a budget
The first thing you need to do is think about where you spend your money.
Keep track of your expenses for one week. Donna Guthrie and Jan Stiles,
in their book, Real World Math: Money & Other Numbers in Your Life,
suggest the following five steps for creating a budget.
1. Estimate your income.
Identify where you get your money - allowance, part-time jobs, or gifts.
What you make may vary from month to month. During the summer you may
work more hours and earn more. Make sure you base your earnings on the
money that you actually take home and not on your salary or hourly rate.
Don't forget that income taxes and social security taxes are deducted
from what you earn. (For more information about payroll taxes, check out
our article, "What is FICA and Why
is it Taking My Money?")
2. Decide the categories for your budget.
Refer to the notes you took before starting this budget. Find common things
that could be accounted for under a single category. For example, you
may want to group school lunches, snacks, and meals with friends under
the food category. Other categories may include school supplies and activities,
clothing and personal items (haircuts, cosmetics, jeans), entertainment
and recreation, transportation (bus fare, gas, parking, insurance, oil
changes) and telephone (cell phone, home phone). The key is to organize
expenses by what makes sense for you.
3. Decide what you will need or be able to spend in each category.
Now decide how much money you will need to spend in each category. Look
back on the week you tracked to get an idea on some of the items. For
things you may not have paid for during this time, such as a haircut or
oil change, you'll need to research the cost to include in your budget.
Don't forget to account for money that you will save. Many experts recommend
dividing your income into thirds:
- One third can be used for spending now on small items
- One third is for short-term saving, for items that you can't afford
to pay for all at once, like a new MP3 player or a computer
- One third is for long-term saving, for things like attending college,
buying a car or maybe even starting a business
Do you and your parents like to donate money to organizations that help
other people or animals? Think about reserving a portion of your income
that you can donate to a charity or a cause you believe in. (Our article
"Sharing Your Money with Others"
provides more information on giving to charities.)
Discuss your savings plan with your parents. They may be able to give
you advice and suggestions. With a savings plan, a budget and a healthy
dose of patience, you'd be surprised at how quickly your buying power
can grow.
4. Keep track of everything you spend.
Keep tabs on everything you spend - even the littlest things. These small
things can really add up. Keep track of monthly totals so you can gauge
if you are spending according to plan.
5. If necessary, adjust your budget to fit your spending needs.
If you find that you have not budgeted enough money for a certain category,
you can shift your monthly budget to reflect your spending pattern. However,
remember that if you increase one category you need to decrease another.
Stories of two savings plans
Mark is fourteen and saving for a computer. Carla is about to get her
license and wants to buy a car. Read how Mark
and Carla worked toward
their financial goals with a budget.
Resource
- Real World Math: Money and Other Numbers in Your Life by Donna
Guthrie and Jan Stiles
(Brookfield, CT: The Millbrook Press, 1998)
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