Teens who learn how to create a budget and stick to their savings goals will build a valuable skill they can use for the rest of their days. We’ll take you through how to track your earning and spending, and build a budget that works for you.
Fear not, creating a budget as a teen isn’t rocket science! Though it is kind of accounting... Here’s how to create a budget in eight steps:
Fundamentally, a budget is just Income minus Expenses. In reality though, expenses and income can vary each month. That’s why it’s important to understand how much bacon you bring home after taxes in an “average” month (working hard or hardly working, amirite?). Birthday and holiday money are bonuses that you may or may not get— so don’t count them as income. Paychecks and allowances are more reliable, and should be included as income in your budget.
Pro tip: Remember to account for time off (if applicable) when you’re figuring out your income. You may also find it easier to break up your budget on a weekly cycle. If you have a job where you’re paid every two weeks, just divide that amount in half.
Understanding your spending habits is the first step to creating a budget. You probably know exactly how much money you make, but it’s a real challenge to guesstimate where your money goes. You might be surprised! Begin by collecting some data. Keep every receipt or record every dollar you spend for at least one week, but preferably for an entire month. We’ve got a worksheet you can use here to help with this step. You can also check out our sample budget.
Some people use bullet journals to track their spending, or use a spreadsheet—you do you! It’s also useful to look at your bank account if you have one, to track spending and withdrawals. Copper is a great banking option for teens and it makes viewing your transaction history a snap.
Pro tip: Don’t change your spending habits at this step — you’re looking to see how you’re currently spending your money. Then you can compare it to how you would like to be spending it instead.
Looking at what you need to spend versus what you want to spend will tell you how much you can save, and where you can eliminate spending. Necessities might include money for transportation (whether that’s gas money or bus fare), school supplies, your phone bill or data plan, etc. Spending on takeout and entertainment like movies, concerts, or games would count as discretionary spending.
It’s also a good idea to categorize your discretionary spending. For instance, you may notice that you put a lot of your money into a particular hobby, or into spending on food and drinks when you’re out with friends, or on clothes. Separating these expenses into their own categories within your discretionary expenses will make it easier to track your spending, and help you create micro-budgets within your master budget.
Now it’s time to do a little arithmetic. Add together the amount that you’re spending necessities each week or month, and subtract it from the income you got on step one. This will give you the amount you have to spend on fun and put into savings. Next, subtract what you’ve been spending on non-necessities. Then see how much you have left over for saving at the end of the week or month. To budget effectively, you must spend less than you earn.
If you have nothing left over, or are spending more than you’re making (gasp!), it’s time to go back to your discretionary funding and find ways to save, whether that means bringing food from home sometimes or finding ways to have fun without buying stuff. You may also find it’s easier to keep from spending if you have a daily or weekly spending limit for yourself, rather than a monthly one.
There are few universal truths in life but here’s one: expect the unexpected. One way that you can be prepared for whatever comes your way is to start saving money as a teen. There are a lot of ways to save money and get creative with it!
Not only should you have money set aside for emergencies, but now is the time to think about other expenses coming up. These could be big-ticket items, like saving for your first apartment (!) or smaller, like a new pair of shoes or concert tickets. You can-and should-save for your goals simultaneously! Get started with Copper and take advantage of features like separate savings "buckets" and goal-tracking features to help you reach your goals.
There are a lot of ways to decide how much you would like to put aside.
One common method is the 50/30/20 rule. You use 50 percent of your earnings on needs, 30 percent on nonessentials, and save 20 percent. You might find that you don’t need to spend fully half of your income on bills—that’s a fantastic part of budgeting for teens! The most important part is that you try to save at least 20 percent of your income.
Another method is called reverse budgeting, or the “pay yourself first” method. With this stratagem, the first thing you do once you get paid is put a previously determined amount directly into your savings. Then plan your spending around your necessities, and the remainder is discretionary spending. With this tactic, the important part is to create manageable, sustainable savings goals.
Zero-based budgeting is for the orderly at heart. This system puts every cent that you earn into different budget categories, so that at the end of each budget cycle: income – savings – expenses – “fun/going out money” = zero. Remember that this does NOT mean all of your moolah goes to necessities and fun! Rather it means that every cent is categorized and either spent or saved each cycle.
Envelope budgeting uses envelopes with your cash earnings, or virtual envelopes (made by you or a budgeting app) so that you allocate specific amounts for specific expenses. Start with the “envelopes” for your necessities, then create one (or more) for your savings goals, then lastly create “envelopes” to fund your free time and hobbies for this correspondence-adjacent strategy to pay off.
This is crucial! A budget only works if you stick to it, and it gets easier over time. Though it may be tempting to tell yourself you can spend more one week then “catch up” the next, this is pretty hard to put into practice. You’ll have a much easier time if you follow your spending and savings goals, and the sooner you get on track, the sooner you can reward yourself by being able to afford those items you’re actually saving for.
Once you’ve gone a month or two using your budget, go back and see how well you’ve done, and how well the budget is working for you. Are you over-spending in your entertainment budget? Are you able to put the money left over each week or month into your savings, and are you on-track to meet your goals? It’s ok to adjust the budget as needed—you’ll be much more likely to use it if it’s realistic for you.
The 50/20/30 rule or 50/30/20, depending on who you ask—applies just as well to teen budgets as it does to adults’. Here’s what it means:
While 20-30 percent for savings might seem like a big percentage for teenage budgeting, remember that this is the time of your life when expenses are low! It’s a great time to start saving and budgeting, which in turn will help you out when it’s time to start building credit and even begin investing.
Generally speaking, teens should save the same proportion of their income as experts recommend for adults, which is about 20%. This allows for some long-term savings, as well as short term savings for unexpected expenses, like vehicle repairs. It also builds great habits that can last for life!
Parents can help their teens budget by:
Common expenses might be:
The truth is, while many of us have natural talents like singing, athleticism, or perfect recall, most of the time when we learn new skills we have to practice to get good at them. Don’t give up! It’s ok to adjust your budget if it isn’t working. Here’s a few tips:
Copper makes it easy for parents to send money to their teen and keep an eye on their spending (and saving!) habits. Download Copper now to learn more
Copper makes it easy to track your spending, and also allows you to set separate savings goals, and contribute to each bucket, which you can even set to do automatically when you get paid. Copper also has daily spending limits and plenty of materials online to help you get better at financial literacy. Within no time, you’ll be handling your money like a pro—you might call that extreme adulting. With the skills you’ve just learned, you’re well on your way. Download Copper now and get a head start
Teen banking is a big topic. There's just too much to cover in detail on one page. Dive deeper with some of our other Ultimate Guides to Financial Literacy.
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