By Vicki Davis, contributor
Sometimes teens think budget is a bad word. (I prefer the term “spending plan” but call it what you will.) Start off by asking your teenager to make a list of the things they’d like to buy or do next year and the cost. Tell them that you’re going to sit down to see how you can make it happen.
Step 1: Create a wish list
Ask your teenager to create a list of things they would want to do with their money next year. Remind them to write big events like spring break, prom or other items on the list. Have them estimate their costs for each of the items. It can also help to have them list a minimum and maximum amount for each, so you’ll have room to work.
Step 2: Create a need list
If your teenager already has a checkbook, then print out a monthly calendar and have them go through and write how much they spent on various items each month. If this is their first year with a budget, look through your own expenses from last year and pull out the things that you paid for that they will be paying for this year.
Step 3: Set expectations
Be very clear on which expenses will be theirs next year. Make a plan for how much you will give them to go toward these expenses. I think it is important to be fair. If you’ve been paying for their gas or cell phone, then you may want to consider putting that amount in their account each month.
Step 4: Set your dates
Additionally, I suggest requiring certain conditions before you make your monthly deposit. You are trying to reinforce the habits that will help your teenager succeed. These habits include balancing their bank account, paying bills on time and updating their spending plan.
Step 5: Look at income and percentages before you plan spending
Everyone has income. If your student is at college, you may be giving them a certain amount of money each week. Budgeting to spend 100 percent of the income on living expenses is a recipe for disaster for your student and for you.
For example, my husband and I encourage our teenagers to follow the giving/saving/setting aside principle we use. Our goal is to give 10 percent of our income to charity, save 10 percent of our income, and we set aside 20 percent of our income into a “freedom account.” The freedom account is for incidentals like annual car insurance. We keep a separate account, but your teenager could put this in a savings account and transfer it when those bills come due. The goal is to have at least enough in the freedom account to cover your highest insurance deductible.
Agree on these percentages up front as you discuss how they are going to plan their money. Use a spreadsheet to help with this.
Step 6: Look at infrequent bills
Other “traps” to remember are quarterly, semiannual or annual bills. These traps also could include an annual vacation. If your student wants to take a trip or go to a camp this year, figure out the cost and divide it by how much time they have to save for it until it happens. (So $1,000 for spring break with five months to go would be $200 a month in their freedom account.)
Step 7: Enter recurring bills
Look at monthly bills and plan for when they will be paid. Remember that each month you’ll have to look at cash flow, but for now you’re looking at the year.
Step 8: Consider a “wants” and needs list
If your student wants a car, help them determine what they need. Work to help your student save their money and look at options for purchasing a vehicle that will not be as expensive. Help them set a goal of how much the down payment should be.
Step 9: Look at the spreadsheet and discuss
Now, after you’ve gone through all this time, something is not going to balance. None of us ever has enough for what we want to do. (It seems.) Now is time for your student to make decisions. Balancing is not only essential, it is mandatory.
I recommend that you let your student take the budget and come back to you with a proposal and decisions about what they will do. I think parents should set the bare minimum requirements: spend less than you make, save for what you want, create a spending plan and have a routine of handling financial matters. But how they spend their money should be something you give them some freedom to do.
Step 10: Be flexible but hold accountable
Help your teenager build routines into their lives to help them succeed. Paying bills twice a month and balancing one’s bank account once a week will do that. Writing out expenses and making intentional decisions is vital.
Our teenagers can live a great life and make good decisions, but we have to help them make choices. But some choices cannot be given: they must balance and they can’t spend more than they make. Wow! What will become if we can teach these 10 simple steps.
Vicki Davis blogs at the Cool Cat Teacher blog and hosts the biweekly show Every Classroom Matters. She is a full time teacher in Camilla, Georgia and has three teenagers.