As a teenager or young adult it is very tempting to spend your money on new gadgets as soon as you get your hands on some cash. While this can be exciting, how often have you bought something, like a new video game, and then regretted spending your money on that item. While saving your money may not be as exciting as its alternative, it is important to do. Saving and managing your money will create a financial cushion for yourself, when you begin to have more responsibilities, like paying bills as you get older and enter the “real world.” I hope that by reading this post you will increase your financial awareness and learn the importance and benefits of money management as a teenager.
How to Begin to Save Money
When you begin to save your money you may not know how much to save each month or how to go about beginning the process. Here are a few tips that you can use to get you started.
Set Goals- Say you get a weekly allowance of $20 from your parents, which adds up to about $80 a month. Set a goal for yourself to save $30 of that $80 which will add up to $360 a year.
Talk With Your Parents: I know that when I was younger my parents were excited when I told them that I wanted to begin saving the money that I got for birthdays, holidays and odd jobs around the house. They set up a system where they would “match” every dollar I saved, as long as I didn’t take that money out of my account for personal use. Maybe you can bring this idea up to your parents and see what they think about it.
Have a Plan-Saving before you spend may be the most important step to this process. As you get older many adults save a certain percentage of their income for retirement funds and other things. You too could save a percentage of money that you get each month and then spend the rest of your income on whatever you choose.
What to do With Your Saved Money
Once you have begun to save your money you will now need to find a place to keep your saved money. The first step that you should take is to open up a bank account for yourself. Opening a bank account serves many benefits, including: safety, easy access and more ways to save. You are protected from robbery that may occur if your cash is stored in your favorite hiding spot, the opportunity to access your account via debit cards/checks/online, and finally an opportunity to earn interest on your account. So what is a savings account and how do I go about getting one?
Saving Accounts
When you’re younger chances are that you most likely have zero expenses. Your parents probably pay for your essential goods like food, clothes and housing. This can make it seem like there is no reason to save your money and you will probably want to spend it as soon as you get it. However, once you get to college you will learn the importance of saving your money when you will have to pay for rent, schooling, food, bills, clothes and all other non-essential items. This adds up quickly and having a good savings account can help you decrease the inevitable college debt that you will most likely incur.
The amazing thing with savings accounts is that you can see your money significantly grow even with a small account. You will earn interest payments on your account on a regular basis and these payments will allow your account to grow without you touching it. For example, say you initially deposit $50 into an account and $50 every month for 5 years. The $3000 that you deposited (5 years*12 months/year*$50), with a 6.5% interest rate compounded annually, will turn into $3,585.31, a gain of $585! Now imagine that you continue to deposit $50 every month for another 5 years. The $6000 that you have put into the account has now turned into $8,428.98, a gain of almost $2500 that you would not have had had you not put it into a savings account. Scale up that $50 monthly deposit into your account and you will see yourself with incredible gains of tens and hundreds of thousands of dollars.
A great list of the best savings accounts of 2014 has been put together over at The Simple Dollar.With parental supervision, you should start researching some accounts and possibly open one up for yourself.
Investing
While investing your money may be a little bit risky, it is an awesome way to increase your financial awareness and possibly set yourself up for stability down the road. Investments do however pose more risk than savings accounts, as there is a possibility that you can lose your money. The three most common types of investments include stocks, bonds and mutual funds.
Stocks- Stocks are when your have partial ownership in a publicly traded company. If the company is doing well, you will have an opportunity to sell your “shares” of stock for more than you paid for them. However, if a company performs poorly you will lose money as you may end up selling your shares for less than what you paid for them. Investing in stocks is fun to do as you can see your investments increase when companies come out with new products or ideas.
Bonds- Bonds represent a promise from a company or organization for a payment of a specific interest rate for the money you leave with them for a specified period of time. Bonds are much more safe than stocks, but you will not have the opportunity to make as much money.
Mutual Funds-Mutual funds are professionally managed collections of money from different investors. Each mutual fund invests a variety of ways including in stocks or bonds. So you are essentially giving your money to these money managers who run these funds in the hopes that they will increase your capital for you.
Penny stocks also offer a way to make yourself a lot of money, however proceed with caution and only use funds that you can afford to lose. Check out my post Turn $500 into $5000 with penny stocks to learn more on the topic.
For more detailed information on the potential risks and returns on investing I suggest you check out a “ Beginners Guide to Investing” at the SEC: www.sec.gov/investor/pubs/begininvest.htm
Be Smart
All in all it is important to be smart when you are saving your money or investing it. Money management as a teen or college student is a great skill to have and if you can start saving at a young age you will be miles ahead of someone who begins saving at a older age. If you successfully save and invest your money chances are that you will become a millionaire at some point! Thanks for reading and I hope you have a great day!
