While financial independence may seem a long way away when you’re still a teen, it’s never too early to learn how to manage your money responsibly. After all, the time will eventually come when you’ll be expected to shoulder expenses for food, rent, utility bills, and other essentials all on your own.
Learning necessary financial skills now, such as how to create a monthly budget or complete a successful credit card application, will help you approach financial independence competently and confidently.
Young people can start to take control of their financial futures by proactively reading up on crucial money management skills and subsequently putting these skills into practice. If you’re a young adult at the beginning of your financial life, honing these 4 skills is a must:
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Practicing Self-Control
Are you the sort of person who gets money and immediately starts thinking of ways to spend it? Or were you taught as a child that practicing self-control in the present can pay off in the long run? Delaying gratification is an essential life skill that will help you in many contexts and situations, including and especially keeping your personal finances in order.
One simple but effective way to exercise financial self-control is to avoid putting too many purchases on a credit card. It may not look like a big deal to charge for a pair of new shoes or a meal at a nice restaurant now, but if you allow your credit charges to add up, you may still be paying for these things years down the road—with interest.
Resist the impulse to pay with credit too often and save up cash for things you want or need. Placing enough funds for everyday expenses in a checking account and using a debit card will allow merchants to deduct your spending money directly from that account upon checkout. Debit transactions also come with no additional fees.
Using Credit to Your Advantage
This is not to say that credit cards don’t have their place in your financial life, of course. Some credit cards offer useful rewards that can make staying on top of your finances even easier. Paying off your monthly bill promptly also helps you build and maintain a good credit score, which will come in handy when you need to apply for a mortgage, an auto loan, a new credit card, or other financial products.
In general, it’s best to use credit cards for emergency purposes only and always pay your bills on time and in full. You also don’t want to carry more credit cards than you can reasonably keep track of. Leveraging credit card rewards, keeping your credit score high, and avoiding debt are the best ways to
make your access to credit work for you.
Tracking Expenses
It will be easier for you to control your spending if you have a clear idea of where your money is going every month. Ordering in for dinner every day may not feel like a huge expense in the moment, but seeing all those expenses added up may just make you reconsider your lifestyle. You can use this newfound bird’s-eye view of your spending habits to change them for the better, build up your savings, and work toward other financial goals.
Tracking your expenses is also much easier now that there’s no end of financial apps and other tools to help you do it. You can use a dedicated budgeting app, a spreadsheet, or good old pen and paper depending on your personality and preferences. The most important thing is to regularly use a system that works for you so you can keep track of how much you’re spending and what you’re spending on every month.
Budgeting
Figuring out a workable monthly budget may seem intimidating, but pick up a book on personal finance and you’ll see that there are many useful ways to go about it. One way that works for many people is known as the 50/30/20 rule, a system where you divide your after-tax income between essential expenses, personal wants, and savings.
Following this rule, half your monthly income or allowance goes toward necessary expenses like housing, transportation, food, utilities, and the like. You can then put 30% toward your wants for the month, such as shopping or dining out on the weekend. The last 20% should be dedicated to your savings, which you can use for retirement or in the event of emergencies.
Be sure to set aside savings after you’ve paid for your essentials for the month but before you start spending on wants. That way, when you begin using your discretionary funds, you can at least do so with a clear conscience and the knowledge that you’ve already completed the month’s financial obligations.
At the end of the day, it’s a good idea to start practicing essential money management skills long before you even begin earning your own money. Taking control of your personal finances and spending habits is the first step toward a financially comfortable future.
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