How to Manage Your Money
Teens, become experts at managing your money.

Money. Unfortunately, for most people, it is a constant source of concern and worry. Millions of teens (and adults) around the world have a difficult time managing money. Money can be spent so quickly and easily. Yet so often, what we buy doesn’t really bring us lasting satisfaction.

How about you? Do you have the money to buy the things you’d like to have and do the things you’d like to do, or do you wish you had a little more to show for your hard work than unneeded items and an empty wallet?

Here are three simple steps you can follow to get a better handle on your money and prepare for a brighter financial future.

1) Examine Your Spending Habits

Perhaps the biggest reason many young people have trouble managing their finances is because they don’t realize where all their money goes. A few dollars here, a movie ticket there, and presto! Your paycheck or your allowance has disappeared, and you’re broke—again.

To solve this problem, you must begin paying close attention to your money. Start thinking about all the ways you spend it. It will help if you write down each expense.

Creating a simple financial logbook will help you track where your money is going. Take a piece of paper and list on the left-hand side of the page your basic expenses such as snacks, clothing, personal items, transportation expenses, entertainment, Church donations, etc. Then list the days of the week on the top of the page and keep track of every item, small or great, for a month. (See illustration of sample financial logbook below.) Some computer programs can help you with this as well.

At the end of the month, sit down and look at your logbook of sporadic spending. Notice where your money went. Ask yourself, honestly, which items are not that important and which could be eliminated to help you save money next month.

Why is it important to scrutinize your spending habits? Because that will help you to put into practice the second part of your new money management plan.

2) Establish a Budget

Budgeting is simply deciding in advance how you want to spend your money. Each time you receive a paycheck or your allowance, you can divide up your money into pre-set amounts for items you would like to buy or save for, including a certain amount for entertainment.

Once you realize where you are spending your money and just how fast it goes, you can easily begin to see how a budget can help.

Obviously, there are some things we can’t live without: food, clothing—maybe even the occasional splurge at the shopping mall. But when you have a strategy for spending money, you’ll actually have more money to spend on the things that are important—by saving money on the things that are not.

Think about this: The money saved by skipping the movies a couple of times could pay for that new shirt you’ll need for school this fall. Taking a brown bag lunch to your summer job might not look cool, but it could save you more than $50 a month. That’s over $150 you could have saved this summer!

Of course, budgeting takes work. It requires self-discipline and diligent effort, but it definitely pays! A budget will give you the confidence and security of knowing how much money you can spend and how much you need to set aside for the future. Budgeting allows you to be in complete control of your money—rather than the other way around.

Sit down with your parents and determine your wants and needs and draw up a realistic budget accordingly. If you do, you’ll reduce your impulse buying and stop ending up with stuff you don’t really need. Instead, you’ll have something to show for your hard work.

So you’ve discovered where your money goes and you’ve established a budget. What next?

3) Develop a Savings Program

Most financial experts say that a good savings program is one of the wisest financial moves a person can make—even if it’s only a small amount, like $5 to $10 a month.

Even one of Earth’s lowliest creatures, the ant, shows us the importance of savings (Proverbs 6:6-8; 30:24-25). Ants store up food for the future. You can follow their example by diligently saving a certain amount of your income. Spend this savings only when really necessary—on things you’ve planned for. Don’t just fritter it away.

Some teens save a crumpled wad of bills and coins in an old coffee can or shoebox under their bed, or in the closet. But having cash laying around can be risky. Not only might you be tempted to spend it, but it could easily be lost or stolen.

What can you do to protect and also get some use out of that money? The answer: Open a savings account.

You need to consider some factors in choosing a financial institution, including banking fees, the amount of interest your money will earn, and the types of savings accounts available.

Some financial institutions may charge you if you don’t keep a certain amount in your account. Others may charge a fee for withdrawals, or for atm usage. Most atms charge some kind of fee, usually just over $2. If you use the machine a couple of times a week, you could be spending more than $16 a month on unnecessary charges. Shop around, and make sure you’re not getting charged a bundle for these basic services.

What about interest rates? The higher, the better for your account, of course. Some banks pay substantially higher percentages on savings accounts than others. For example, savings banks typically pay more than commercial banks on savings accounts. Certain “branchless” Internet banks such as e*trade Bank, First Internet Bank, GiantBank and Wingspan Bank currently offer some of the best savings rates in the nation.

For a young person seeking to open a personal savings account, there’s really no major difference between a commercial bank, a savings and loan, or a credit union. Each of these generally offers three basic types of savings accounts: passbook savings, statement accounts, and time deposit or certificate of deposit (cd) accounts.

With a passbook account, you receive a small record book in which the bank records your deposits and withdrawals. Passbook accounts can be opened with as little as $5. One drawback is that because passbook accounts are more expensive to process, you may earn less in interest than with a statement account. Also, these types of accounts are not offered by Internet banks.

With a standard statement account, you record your own deposits and withdrawals while the bank sends you a monthly or quarterly statement of your account’s status.

Both the statement account and the passbook account are highly “liquid”—meaning they are easy to make withdrawals from.

However, if liquidity is not that important (you know you won’t need your money for a while) and you happen to have at least $500, then a wise choice would be a time deposit or cd. You can generally earn quite a bit more interest on a cd account than on the other two types of accounts.

Check with your bank for terms and restrictions, and make sure that you know the interest rates, maturity dates, minimum deposits and penalties involved in a cd account before you commit to one. Your parents’ experience in this area may well be your best source of information.

How people handle their money says a lot about their character. Wisely manage the small amount of money you have now, and you will be cultivating habits that will enable you to handle more in the future.

By following the steps in this article, you’ll be building good money management habits that will last you a lifetime!