Building habits from your teenage years can have a major impact on your life. Lately, teenagers are inclined towards learning personal finance. They are exposed to people achieving big at a young age and aspire to become one as well. But they may need guidance to avoid mistakes that can impact their confidence and lead to monetary losses.
Here are some personal finance tips for teens that are easy and simple to follow.
1. Gain Financial Awareness
Teens should learn about finance to understand why personal finance is required. Gaining financial awareness will change the herd mentality and help them realize the necessity of it. Earning, spending, and saving all by making the most of what you have.
Teens may be attracted by offers like rapid growth, doubling their money, etc., which may be some fraud or scam. Also, they are exposed to multiple online platforms that claim to offer financial services. Awareness creates the ability to distinguish between right and wrong decisions.
There are multiple ways to gain financial awareness, such as reading finance news, learning the basic terminology, like compound interest, debt instruments, equity, tax, etc., reading books, and many more.
2. Set Financial Goals
The setting of financial goals gives a path to plan your money. Teens may find it difficult to save or invest. They may believe spending today is better than saving for tomorrow. But goal setting will motivate them to be more disciplined and understand the importance of saving money.
It is important that goals are not unrealistic or far from reality. For example, setting a goal of getting a car with a monthly saving of Rs. 500 is unrealistic. To get more clarity, it can be divided into short-term and long-term goals.
- Short-term: Saving some amount every month, buying a musical instrument, cutting down on additional expenses, etc.
- Long-term: Getting a new phone, building emergency funds, saving for college, etc.
3. Start saving early
The earlier you save, the more wealth you create. This phrase is believed and followed by most of the great leaders. Saving will give you a sense of financial independence and make you feel responsible. After saving a certain amount, teens may get into investing to increase their income.
Investing even a small amount from the early stages of life can have a big impact on your finances later in life. For example, if you save Rs. 500 every month for 3 years, then you will have a fund of Rs.18000.
Identifying the right place to invest is also very important. For example, starting a SIP of Rs. 500 for 3 years, which yields an average interest of 10%, will give you a total amount of Rs. 20920.
4. Follow a budget
Teens should prepare a budget for themselves and stick to it. It will help them understand the nature of their expenses, the amount they are saving, adjustments required, and many more things. Budgeting will help give insights into how far they are from reaching their financial goals.
Creating a personal budget for teens does not require qualified finance personnel. It involves very basic steps like tracking expenses, incomes, and savings. Tools like an online tracker can help with the process as well. The steps are clearly listed, and it is the execution that has to be done.
Reading a book can help in preparing the budget. However, it may not act as an ultimate guide, but it surely will give deep insights and a better perspective.
5. Research before investing
Investing may sound fancy for teenagers, but choosing the right option is important. Without any prior knowledge, going for day trading solely based on tips from an online platform will only lead to a loss.
It is essential to understand the market trends, investment options available, potential growth sectors, etc. Investment options like SIPs, index funds, etc., may be the right option for teens as they do not require active management of funds. For teens going for equity trading, diversification is advised to understand the nature of different markets and also reduce risk.
Research will help find the suitability of the right option based on individual factors like income source, age, knowledge, etc.
Bottomline
These few personal finance tips for teens are helpful and simple to follow. It will make them far-sighted and better at managing money. They will understand that even the smallest contribution counts. Managing personal finance is not just about managing money, but overall shaping the individual by bringing discipline and integrity.
Financial awareness is a need more than a choice.
Written by: Tanya Kumari