It’s said that money makes the world go round, but how does it work? As you start to earn your own money, you need to know how to manage it. Here are five basic money principles that can get you started off on the right track and set you up for financial success now and into the future.
1. Live Within or Below Your Means
That’s a fancy way to say, “Don’t spend more money than you make.” If you have $20 a week, don’t spend $30. If you can spend less than $20 and put the rest in savings, you’ll build a financial cushion for yourself to fall back on when you need it in the future. You can learn to live beyond this week’s allowance or paycheck if you learn to budget.
2. Track Your Spending
Make sure you know what you’re spending your money on. You can do this manually by saving receipts, or you can use technology to help. Apps like Mint help you categorize your spending and show you where your money is going. Webster blogger Amanda Gabriele has more tips on tracking your spending and budgeting here.
3. Set up a Budget
Creating a budget is simply writing down what you want to spend your money on, how you’re spending it now, and adjusting to reach your goals. It can be a simple list or a more complicated chart. Either way, writing down what you plan to spend your money on helps you stick to your plan and avoid impulse buying. Separate your “needs” and “wants”, making sure you have enough for your needs, while saving for your wants. CNN Money lists their top ten steps to creating a budget here.
Saving money should become a normal part of your financial routine. Put aside a small percentage of your earnings each time and make it a habit. Saving for a rainy day could help you purchase something big in the future, like your first car or semester at college. You can save your money in a jar or in your sock drawer, but putting it in a bank account is much safer. Savings accounts are usually fee-free at most banks until you turn 21. Plus, if you use a bank account, the bank will actually pay you to keep it there! That’s called interest. Check out this interest calculator to see how it works.
5. Learn How Credit Works & Use It Wisely
Credit is getting something before you pay for it and promising to pay it back later. Sounds great, right? Well, not so fast! When you borrow money on credit you have to pay interest to use that money. That means that what you bought will cost you more than what you paid for it. Also, if you don’t pay your bill on time, you could get a late fee, and it will go against you on your credit report, which can hurt you when trying to get a loan for a car later. Learn to pay your bill on time, every time. It’s important to first master budgeting and savings before you tackle credit.
Managing your money just takes some time, practice, and dedication, but getting into good habits now will help set you up for financial success. If you can learn to live within or below your means, track your spending, set up and follow a budget, save, and learn how credit works and use it wisely, you’ll be setting yourself up for financial success now and into the future. What good habits have you started already?