Money doesn’t grow on trees. It’s something that is earned, and requires hard work and dedication. Most people wait until adulthood to pursue money and financial independence. However, those who start early and follow the right practices are getting a head start and setting themselves up for success.
Teenagers who wish to achieve financial success must start early so they can learn crucial insight and learn from mishaps so that they are capable of flourishing during their adult years.
Financial success can be defined in numerous ways, and the definition is often unique to each individual. However, a solid foundation for the term is achieving a desirable outcome for one’s finances and money.
Essentially, you reach a point in your finances that you are happy with and does not make you worrisome. The answer to this will be different for you, so when you start your path to financial success, you must determine what you are working towards and why.
Why is it important for teenagers to set themselves up for financial success? The main reason is financial independence. This is when you are free from the burden of external forces, and can support yourself without relying on others, reducing financial stress. Another reason is that along the way, you will develop good habits and learn valuable lessons.
In this article, we will discuss 5 ways that teenagers can set themselves up for financial success.
Investing Early
According to Fidelity Investments, only 1 in 5 teenagers have started investing. That means 80% of teenagers are either not aware of the benefits of investing, or have not been educated on the practice.
I’ve said before how important investing is for teenagers to start in the past. Investing as a teenager is a unique opportunity, as it offers insight into important money-management lessons, such as risk-management, as well as utilizing the extra time you gain as a result of starting early. The extra time you gain allows for something called compound interest.
Compound interest is a term that is used to describe the advantage that comes with investing for an extended period of time. During this period of time, the interest you achieve on your investment expands, and your money will grow exponentially.
By putting their funds into investments like individual stocks, mutual/index funds, or bonds, teenagers are essentially putting their money to work. They are building a strong foundation for their future. Teens can set up custodial accounts or practice with mock accounts to indulge themselves in the stock market.
Setting Up A Savings Account
Just like investing, saving is a great way to manage your money. Savings can be used as something to cover unexpected expenses, such as a medical emergency, or contribute to a desired goal. It is also a place that provides security for your excess cash, and is free from the volatility of the stock market. Speaking of goals, this is something that should be set up along with a savings account.
To put money into a savings account, you must also have a reason to. Set SMART goals so that your goals are both achievable and realistic. It should be noted that nearly one in three Americans don’t have enough in emergency savings to cover three months of expenses. With the right saving practices, this can be avoided.
It is encouraged that you pay yourself first. Basically, when you receive money, the first thing you should do is put it into your savings account. Learning that savings is the first bill to pay is a great way to accumulate wealth.
Learning Financial Literacy
Financial literacy is the ability and knowledge used to understand and utilize various financial skills. These skills include budgeting, investing, money management, and accounting. Individuals who are financially literate are less susceptible to financial shortcomings and misleading practices.
Things such as understanding credit, learning how to pay off debt, and learning how to manage your household budget are just some ways that you can prevent financial failure.
Educate yourself through various sources. This can include books, informative videos, or podcasts. Whatever method you pick, ensure that it is a trusted source and can provide you with accurate information.
Learning financial literacy will steer you in the right direction, and will help you make informed decisions with your money. It can invoke confidence to confront difficult decisions and mishaps that come your way.
Get Work Experience
Working as a teenager not only puts some extra money in their pocket, but also provides valuable lessons and insight, such as time management. It also gives them a look into real-life experiences and a first-hand look at how a business operates and functions. Additionally, they learn how to balance a work-life schedule. If you are a teenager, consider getting a part-time or summer job to encourage personal growth and propel yourself in life.
Working as a teenager develops your resume. The experience you gain from working is seen as a positive factor to your recruitment to colleges or other job hirings. Even scholarships are offered to teenagers who have spent time in the workforce.
Develop Good Habits
Developing good habits as a teenager is a great way to set yourself up for financial success. An example of a good habit is to have proper spending habits. Examples of good spending habits are budgeting, paying bills on time, and putting money away for savings and investing. The mindset I try to follow is that is it unnecessary to spend your money on useless goods, but instead on valuable experiences.
Some other good habits to develop are:
- Spend less than you earn
- Budget for extra and unexpected expenses
- Keeping track of your income and spending
- Using coupons/buying the less expensive option
- Building your credit score
Similarly, you should break bad habits that you may have developed. These can include overspending on nonessentials, letting debt grow, and not saving until after you have spent your paycheck. By breaking bad habits, you set yourself up for success and prevent financial difficulties.
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