Have you ever thought about your dream job?
What about your dream paycheck?
The money a person makes in a year is called income, and this is the starting point of your finances.
Can you think of any other terms for finances?
Funds, fortune, or the bag, whatever you call it, it’s fun to think of all the cool things you can do with your income.
You can buy new things, start a business, travel, or invest.
But before you start spending, you first need a realistic financial plan so your money doesn’t run out.
Setting up a personal financial management plan is such a power move.
The smarter you become about money at an early age, the more you can control it.
Not the other way around.
Imagine having the latest shoes and a cool ride, but having a negative balance in your account.
Think about what could happen if you aren’t being realistic with your income in the future.
This might sound like adult stuff, but personal financial management is important at every age.
Developing a plan to manage your money is unique to everyone, but ultimately the purpose is to provide a better sense of where and how you’re spending.
That’s what finance is.
Maintaining control of your money can help you avoid collecting too many IOUs with other people or banks.
More importantly though, it can help increase your financial freedom and adapt to emergencies or changes in your finances.
This leads to lower stress and anxiety levels.
So the first thing to consider is your income, or where your money comes from.
You might already have income from babysitting jobs, chores, or yard work.
You could win a prize or scholarship.
Birthdays, holidays, graduations, and celebrations are also times when people may receive money.
Those are all sources of income.
When you’re older, income can come from labor or services, the sale of property or goods, or financial investments.
But no matter where your money comes from, you need a plan.
That’s when your next step comes in–goal setting.
And I don’t mean goals like in soccer.
I’m talking about SMART goals.
Begin with a goal that is specific, measurable, achievable, relevant, and time-bound.
Following SMART goals will help you stay focused and a financial smart goal could help you save more money for things like a new video game, concert tickets, or your first car.
Saving isn’t just holding on to your money.
It gives you a chance to grab opportunities without stressing about running out of cash.
You can give yourself more choices without asking anyone for help.
Or in an emergency, your stash could help avoid disappointment.
What would you do if your phone suddenly breaks and you need a new one fast, or you blew a tire on your way to school?
An emergency fund is money you’ve saved up for those unexpected moments, and it keeps you from being stuck, stressed out, or borrowing from someone else.
Saving could even help you pay for medical emergencies, potentially leading to a longer life.
They say money can’t buy happiness, but it can buy peace of mind.
Money can be a big stressor when you’re overwhelmed with expenses, but by carefully monitoring what you’re saving and having a budget, you can adjust if there is a change in income or expenses.
Think about how you plan to split up your time between school, clubs, and hanging out with friends.
A budget is the same idea, but for your money.
It’s a way to decide ahead of time how you’ll divvy up your funds so you don’t waste it or run out when you need it most.
Budgets vary because we all have different expenses and savings goals.
But managing finances wisely with a realistic budget can help anyone maintain control of their money.
Even if you don’t have income yet, it’s important to know how to budget for when you do have it.
There are as many budget structures as there are people, but a couple are worth mentioning when you start.
One way to build a budget is to split your money evenly between expenses, wants, and needs.
This is sometimes called the 30-30-30 rule.
And I know what you’re thinking.
That only adds up to 90%.
Where does the other 10% of your income go?
That’s the part of your budget that you save for unexpected needs.
Another super simple option for your budget is a 70-30 split, where you spend 70% and save 30%.
Here’s an example.
Let’s say you get $100 for your birthday.
$70 is yours to spend on whatever.
And $30 goes straight into your savings.
Look at savings like you’re paying yourself.
You can buy what you want now and have some money later for other things.
But on the flip side, if you don’t save any money or build those financial management skills, you could end up in debt.
Debt is an amount of money borrowed by one party from another party.
It’s basically money you owe.
You could be in debt because you owe people close to you, or because you own money to a big financial institution like a bank.
I know, it sounds bad, and it can be.
But some forms of debt can also be okay, like getting a loan for a house, a business, or paying for school.
Debt allows you to delay payment for something you purchased.
But it usually comes with a cost, and that cost is known as interest.
Interest is a fee you have to pay for borrowing money on top of what you owe, and it’s typically calculated as a percentage of what is being borrowed.
Let’s say you want to borrow $20,000 from the bank to help purchase a new car.
The bank agrees to loan you that money but adds a 10% annual interest fee on top of the loan and says you must pay back the loan in 12 months.
That means that you would have to pay back the entire $20,000 plus an additional $2,000 for interest.
Interest can really stink when you owe it, especially when interest fees are really high, but it can be great on the receiving end.
Let’s say you lend your friend $20 and your friend promises to give you the $20 back, but also gives you an extra $2 as a way of saying “thank you.”
That extra $20 is interest.
Sometimes people will set up arrangements like this on purpose, and that’s called investing.
Investing is kind of like saving, but it involves some risk.
Imagine planting an apple seed that you hope will one day become a big tree that will produce lots of apples.
If you were to plant a variety of seeds over time, you could have a beautiful garden with lots of different fruits and vegetables.
Investing money works the same way.
You can put your money into stocks, a business, or a project.
You could even invest money in all those different areas.
If what you invested in grows, your money will too.
But sometimes things don’t always work out as planned.
If you’ve ever tried gardening, you know what I mean.
And that’s the same when you invest money.
You could potentially lose money depending on the risk or type of investment.
One way you can invest your money is by buying stocks.
Think of your favorite brand whether it’s a gaming company or a clothing producer.
Companies that have stocks let you own a tiny piece of it.
That’s what a stock is, a small share of a company.
If the company does well and makes more money, the value of your stock goes up and you can sell it for more than you paid.
Sometimes, companies even share their profits with you in the form of dividends, like getting bonus fruit from a tree you helped plant.
But if the company doesn’t do well, your stock might lose value, and you could sell it for less than what you bought it for.
So there’s some risk involved when buying stocks.
A less risky investment option is bonds.
Bonds are an investment you can put into a company or the government.
And while there’s a smaller chance of losing money with bonds, the potential for growth can be a lot less than stocks.
It’s like planting a tree that gives steady, predictable fruit, but not a huge harvest.
Then there are mutual funds.
A mutual fund is like pulling your money with a bunch of people to invest together.
This is like you and your friends putting all your money into one big jar and then a professional gardener decides the best seeds to plant (stocks and bonds) for everyone.
If the plants grow, everyone shares the fruit.
This is great if you don’t want to pick investments and would rather let an expert handle it.
And I know, I know.
This probably sounds like a lot of stuff you won’t need for a long time.
But the point of all this is that you don’t have to wait to get a job or have a ton of money in the bank.
You can build the habit of setting a budget with savings goals now.
You don’t even need any money.
Just having a goal in mind is a great place to start.
Financial stuff can be a lot to take in, but the good news is that practice makes perfect and one day, these skills could be second nature to you.
So start today.
Give yourself a challenge and see how much you can save.
Make those dollars work for you.
Your future self will thank you.
