Some of the young people who have been reading along have asked me this question a lot lately. The conversation usually starts off pleasant enough, but it usually dissolves into a full on rant. And if they ever get to tell me their side, I imagine that it won’t get any better!
I can give you all the advise there is about the difference in financial institutions, I can even pick the right one for you. But the best institution in the world won’t do you any good if you don’t have the discipline needed to set up and stick to a proper budget!
The word budget to teens, acts like garlic on a vampire. Stick with me here because this is going to be an important lesson! The fact of the matter is, nobody wants to think of limiting their enjoyment of the fruits of their labor. I know I don’t, and I’m pretty sure that you don’t either. That being said, I now have to ask, “So What”? Having been in a position where I was a very young man making a very respectable living, (and consequently having blown it on nonsense), I know that there is way more to life than the instant fix we have all been programmed to seek.
So we have to be realistic about what we really want, and what we are willing to work for. When I was a teen living at home, theoretically, I could save every penny I earned, and retire now. In theory that sounds good, but the reality is that I wasn’t willing then, nor am I now, to make that kind of sacrifice. There are some things that I just can’t live without. There are others that, while I could live without them, I choose not too. There are yet others that I really don’t care one way or another about, but I usually wind up getting them anyways. This has always been the case for me, and I’m sure it’s not that different for you.
What worked for me, was writing down my plan. My paycheck rarely changes from period to period, so it’s kind of easy to figure out what I take home on a monthly basis. Since most bills also come on a monthly basis, it’s even easier to figure out what it is that needs to go out. The difficulty comes when I have ran out of incoming, and still have several outgoing still waiting. It is for this reason that I now rank each of my expenditures on a 1-10 scale of importance.
The entire scale is reprinted in my upcomming book, Finance For Youth: The Book, (look for further announcements this year!), but the gist is this; most of what I spend is a “5”. I don’t NEED it, but I’m also not willing to do without. There are some things that are “10’s”, meaning I cannot do without, (food, gas, etc), just as there are a few “1’s”, stuff I really don’t need, and don’t particularly want either. The real secret of how this works, is honesty to myself. I have to ask myself every time I look at my finances, “Do I NEED that thing? Would I feel good about telling my wife I spent as much as I did on that thing?” If the answer to either of those questions is no, I move on to the next bill, downgrading the original, until all my major bills are paid, (on time!) and I still have money left over. This money goes on buying some of those things that fell lower on the list.
What types of things are a “10” in your budget? Is it really a “10”, or are you trying to justify to yourself your spending a lot of money on something you really don’t need? Once you have started this process, don’t forget to make sure it’s in writing, and don’t forget to stick to it! You’ll be surprised at your success!