How To Budget Tips for Young People

Envelope System for Basic Budget Understanding

Here are some tips on how to teach your kids how to budget their money.

First, make sure they receive an allowance. This allowance should be commensurate to their age group and where you live. This means their allowance should allow them to pursue some activities with friends and have a bit to purchase an item or two on their own. The parent should also keep in mind that what is an excellent allowance amount in one city may not be enough of an allowance in another city.

The younger children should have enough to indulge a food treat and possibly a smaller toy.

As for teenagers, it is recommended that their weekly allowance allow for one (modest) meal out with friends, and a small shopping trip for either an item that fits with their hobbies or interests. So, how much would a movie and a burger meal cost in your community? Round up at least $5.00. Encourage that they save from this allowance for something bigger that they want but you are not willing to buy for them out right.

The Envelope System

Understanding a budget often becomes more important once they have their first job. Most have many more expectations than money coming in at that point! Not every teenager has a job now but they should. Managing your own money is a great deal more of a reality than managing ‘free’ money given by the parent to the child.

One idea is to start them out with an envelope system. Label each envelope for a specific expense. It could be movies, video games, eating out, saving for that special one thing, or any item that is important.

This may seem very unsophisticated but it is an excellent hands on tool.

For example, when my nephew moved in with me shortly after school he had no idea about budgets. He thought a budget was just another word meaning “NO!” I assured him that it was exactly the opposite!

We took a series of envelopes and labeled them:

~ Rent

~ Food

~ Car (gas, repair, and insurance)

~ Clothes

~ Emergency

~ Savings

~ Fun

We then took his cashed check and apportioned into those envelopes. He was startled at how much ‘fun’ money he had each week. I said that was his walking around money and that he should allow himself to do whatever he wanted with this money. It was his budget.


Dating Money

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The next step in the envelope system is to analyze each budgeted amount. Are you paying the best possible price for this item? How could you economize?

For example, he was buying his lunch at work. This was coming out of his ‘fun’ money. He was also putting on weight and did not have enough money for the dates he was having. So, I suggested he make and take his lunch to work. Well, guess what, that saved him a bundle.

At this point, I intervened and suggested he take a small part of the savings he had from taking his lunch and split it between his emergency and savings funds. He did so. However, most of his lunch savings went into the Fun envelope. That made it even more attractive to save more money.

As the weeks and months went by we worked on economizing on everything. He found a consistently cheaper gas station that was on his way to and from work. He started watching the sales for his clothes where he was able to pay frugal prices for quality. Quality clothes last longer as the quality fabrics wash better. These savings would reduce the amount of clothing that he had to purchase in the long run. That savings would begin to show up in the future.

He even started cooking more at home. Turns out he was a pretty good cook.

Before long he had his own bank account and had rented his own place.

The envelope system is a hands-on demonstration of how to handle money. It is easy to do and very successful.

It may seem simple but it works.

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Comments 3 comments

NMLady profile image

NMLady 4 years ago from New Mexico & Arizona Author

Good luck. Teaching kids about money is a challenge.


barbergirl28 profile image

barbergirl28 4 years ago from Hemet, Ca

Good tips... I am probably going to start giving my kids an allowance and it seems that the envelope system seems to work well with alot of people. I don't really believe in allowance, but at the same time, I want them to be prepared for the future.


sdzulu 4 years ago

Good post! This is one of those life things that doesn't get enough attention.

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