Personal finance is a topic that teenagers need to learn as they transition into adulthood. However, as incredibly important as good money habits will be in life, it’s not something that’s necessarily properly emphasized during their formative years. In fact, it’s been reported that nearly three-quarters of teens (74 percent) lack confidence in their knowledge of personal finance (according to a survey by financial technology company Greenlight).
If you’re a teenager, then you’ve got your whole life ahead of you, and knowing how to properly navigate your finances is something that’s going to be paramount to helping you make the most of it. That’s why in this post, we’re going to share eight important money tips that every teenager needs to hear.
1) Invest in Your Financial Education
So much formal education focuses on knowledge that will help you with your career. Yet, almost no attention is given to the development of good financial management.
Just like reading and writing are the foundation of every other skill you’ll need in your professional life, financial education can also be just as practical. Knowing what to do with money, how to make it grow, and the difference between good and bad opportunities will be critical throughout adulthood.
The great thing about building your financial education is that you literally don’t have to spend any money to obtain this knowledge. There are millions of free resources at your disposal. You could:
- Check out books from your local library
- Read blog posts
- Listen to podcasts
- Watch YouTube videos
It’s absolutely amazing how much valuable content is out there ready for the taking. All you have to do is be willing to take it in.
2) Your Employer Doesn’t Determine Your Income
Once you graduate and start settling into your career, don’t believe for a second that whatever your employer pays you is all that you’re worth or all the money you’ll ever be to earn. Many adults spend their entire working lives making this mistake, and it’s sad because the truth is that the only person who controls your income is actually you.
For starters, if you’re ever unhappy with how much someone is paying you, then change jobs or move into an entirely different field altogether. There have been countless stories of people who were miserable with one employer and what they paid, but then found their calling once they moved on to a new company. This may involve relocating, getting additional certifications, and being uncomfortable in a new job setting, but these costs are generally outweighed by the benefits.
Additionally, there’s nothing stopping you from using your free time to engage in side hustles where you’re able to work whenever you’re flexible. Learning how to invest and acquiring income-producing assets are both great ways to add passive income streams that will enhance your cash flow.
3) Leverage Time to Your Advantage
A great secret to investing is that time is one of the best resources an investor has. The younger a person is, the more they can leverage time to their advantage using a phenomenon called the compound interest effect.
Component interest is when money builds on top of the money you’ve previously invested plus any earnings that have accumulated along the way. Over time, this creates an exponential growth effect where previous earnings start to build up so much that they eventually produce more new earnings than the contributions themselves.
This puts teenagers in a unique position to capitalize and potentially become millionaires without any specialized investment knowledge. You can see how this works for yourself using a compound interest calculator such as this one here.
4) Automate Your Finances
Every now and again, we all fall victim to procrastination. However, a missed payment or waiting too long to start saving can have major consequences later on. That’s why my suggestion is to take yourself out of the equation and instead automate your finances as much as possible.
Almost every type of account now makes this possible. Most bills can be auto-deducted from your credit card or checking account. Investment and retirement accounts can be set up for automatic contributions in virtually any amount you wish. All you have to do is make sure your account has enough money in it at all times to support these activities.
5) Your Credit Score Follows You for Life
Up until this point, you may have been led to believe that getting good grades in school will open certain doors for you. However, in adulthood, there’s one grade – a financial “grade” – that will dictate more about your life than you probably know: Your FICO Score.
The official term for your credit rating is your FICO Score, named after the company that calculates it. This is a unitless number from 300 to 850. Basically, the higher your number, the better and the more likely you’ll be approved for a credit line. Alternatively, if your credit score is low, then you’ll be more likely to be declined by creditors.
This is much bigger than whether or not you’ll get approved for a credit card. Your credit score can also determine if you’ll be able to:
- Buy a home or rent an apartment
- Get financing to buy a new or used vehicle
- Open a savings account
- The premiums you’ll pay for insurance
Hence, it’s critical to make sure you’re always taking steps to improve your FICO rating as much as possible. Again, a good first step is to automate your finances. This helps ensure that your bills are paid on time and in full which counts for a major percentage of your score.
6) You Can Either Be the Payor or Payee
For every financial transaction, there are always two parties: the one who pays and the one who collects. It’s up to you which side of the table you want to be on.
For example, if you do what most Americans do and buy lots of big toys like expensive boats or vehicles, then you’ll rack up a lot of debt. You’ll always be working towards paying someone else back.
On the other hand, if you’re the one who owns an income asset, then other people will be the ones paying you. Take rental properties for instance. Your tenants are making monthly payments, and you can use that revenue as cash flow or to pay off the property itself.
7) Control What You Can Control
There will be many things in life that impact your finances. These would be situations like emergencies, stock market crashes, theft, etc. However, that doesn’t mean that all is lost. Instead, you can focus on what is under your control.
A good example is your budget. Whether your income is $50,000 or $500,000, you absolutely have to ensure that your expenses don’t exceed your income. Otherwise, you’ll eventually run out of money – no matter how much you earn. Many people make the mistake of not monitoring their purchases until it’s too late.
For this reason, get in the habit now of setting up a budget for your money and sticking to it. A great system for monitoring your purchases regularly is to use a budgeting app like Buxfer.
8) Money Isn’t Everything
It can seem like excelling in your career and building your net worth is the goal. However, don’t lose sight of what’s truly important.
Money is not the goal. Money is just meant to be a tool to enhance your life and the lives of your loved ones. It should be used to make sure you’re healthy, happy, and able to do the things that will add value to your existence. Don’t lose sight of this fact.
Feature image source: Unsplash