By Cameron Kelly
Throughout high school, it is common for many students to have jobs or some sort of income. This money might be spent on necessities such as gas or insurance or it might also be spent on discretionary things like clothes or fast food. It is easy to spend the majority, if not all of your money, on things that matter to you right now. However, if you can save more money now, it will benefit you much more in the future. Dave Ramsey, a financial expert, states, “If you will live like no one else, later you can live like no one else.” This means that if you can make the sacrifices now that most people are not willing to make, then later on you will be able to live a life without financial stress. By considering some valuable financial advice, you can set yourself up for success down the road. Take advantage of being young and start establishing healthy financial habits. Through creating good habits now, it will make for a very rewarding future!
Great personal finance is more about discipline and good habits than how much money you make. There are many examples of people who make a modest income, yet through good habits and exercising restraint, they create significant wealth. In order to achieve and grow wealth, it is wise to divide your money into three buckets: spending, savings, and giving. Each bucket should have its own account or envelope so you are not tempted to borrow from one or the other. Even if the amount of money in each bucket is small, learning to be disciplined and exercise good habits will help you to grow your wealth over time.
Your spending money is for the things you want or need now. This money can also be for any financial obligations you might have such as bills or expenses. Looking for ways to reduce your expenses can help you reduce the amount of money you spend each month and allow you to put more money into savings. It is also important to try to focus your spending money on things that are legitimately needed or truly bring you happiness versus wasting it on frivolous expenditures or trying to keep up with others. While it can be hard to withhold spending your money when others around you are spending their money, it is important to stay resilient.
Savings can be broken into two buckets: short term savings and long term savings. Short term savings should be for larger ticket items you are hoping to obtain within the next one to five years such as a car or a deposit on an apartment. This money can be kept in a savings account at your bank or credit union. Long term savings should be for significant expenses you expect to have further down the road, like a down payment on a house or retirement. This money should be invested in well established index or mutual funds through a brokerage account or IRA at a company like Fidelity or Vanguard. Investing your money versus letting it sit in a savings account will help it grow over a long period of time. To put it into perspective, for every dollar you invest as a teenager, you will have fifty dollars by the time you are in your 60s. By investing, you can watch your wealth grow.
Setting aside a predetermined percentage of any money you acquire into your savings bucket can be difficult. This keeps it out of your spending bucket (used for things you want or need now) and forces you to save for the future. When you are young and your financial obligations are low, this should be a higher percentage of your money (shoot for 50% or more). However, when you are older and have more financial obligations like rent/mortgage, utilities, food, etc., that percentage will likely go down. Another tip for great personal finance is to stay out of consumer debt. Debt such as credit cards can get people into financial trouble quickly. Do not use a credit card if you do not have the discipline to pay it off in full every month. If, however, you (and your family) do pay off credit cards every month, being added as an authorized card holder on your parents’ credit card can be a good way to start establishing credit.
The final and most rewarding bucket for your money is the giving bucket. If you can set aside just 5%-10% of your money and give it to others in need, I promise you it will bring you more joy than a new pair of shoes ever will. There is never a shortage of charities or causes that need financial giving from others. You might choose to give towards a children’s hospital, an animal shelter, a high school graduation party, or any other of the many causes out there. The reward of donating to a cause you believe in not only helps others, but it also feels great too.
As Dave Ramsey states, “If you will live like no one else, later you can live like no one else.” If you can make the sacrifices now that most people are not willing to make, then later on you will be able to live a life that those people will never be able to live. Remember, great personal finance is more about discipline and good habits than how much money you make. Getting into the habit of creating spending, saving, and giving buckets will help you to stay disciplined with your money. The sacrifices and discipline will lead to a less stressful and more successful life in the future.