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Avoiding a financial shipwreck for teens

by Joe on January 13, 2010

Money Management for Teens

The teen-age and early twenties, is the make or break for many people’s life. Coupled with major decisions and peer pressure that this age group has to deal with, financial planning is never on the mind; and no wonder most people wreck their financial ships at this age.

Get a career- stop thinking about a job! and start thinking about a lifelong career. What do you want to spend the rest of your life doing. Talk to your family and people who know you very well who can identify your strengths. Follow your passion; make it your career and that way you will not end up with a job for a paycheck.

Start to budget –  If you can understand the concept of budgeting and apply them, you are bound for a great financial take off. You may not have a source of income and may be relying on your parents to pay you allowances for gas and lunch, or you may have a part-time job that you do after school; whatever it is, budget will be your life saver.

Get a savings account- If you have a job and make some little cash a week, get into the habit of saving. Shop for a savings account from the local banks or credit unions and start depositing your cash in that account. When you see the account balance statements reaching hundreds you will be so motivated you will love it.

Stay away from Debt –This is the greatest mistakes young people make. I made the first mistake here when I got my first credit card, I thought I was in position to deal with my finances, I had a job was working on my career, and had some savings in the bank.  I thought it was the cool thing to have a credit card since the balance was $300 anyway; five years later, I had three cards and over $10,000 in debt.

Dave Ramsey answers the question “How should I prepare to manage my money when I go off to college and what should I do when I’m there?”

One thing you want to be sure to do in college is avoid credit cards. They’re going to be tempting you on every corner. And of course, you need to learn how to operate, balance and reconcile a checkbook.

You also need to learn how to do a zero-based budget where you look at what you’re going to spend every month. A friend of mine gives his college-age daughter $200 a month for expenses and she has to do a written plan showing exactly what she’s going to do with that money before each month begins

 Start investing- Talk to your parents or your banker about starting an investment. Plan to set aside $100 a month and channel it toward this investment. When I saw the chart below by Dave Ramsey, I was really mad and wished that I had grasped the concept of compound interest earlier.  Note that Ben invests less than $200 per month.

Example – Ben and Arthur

 Both save $2,000 per year at 12%. Ben starts at age 19 and stops at age 26. Arthur starts at age 27 and stops at age 65. AND ARTHUR NEVER CATCHES UP TO BEN!

 
Age Ben Invests Arthur Invests
19 $2,000 $2,240 $0 $0
20 $2,000 $4,749 $0 $0
21 $2,000 $7,558 $0 $0
22 $2,000 $10,706 $0 $0
23 $2,000 $14,230 $0 $0
24 $2,000 $18,178 $0 $0
25 $2,000 $22,599 $0 $0
26 $2,000 $27,551 $0 $0
27 $0 $30,857 $2,000 $2,240
28 $0 $34,560 $2,000 $4,749
29 $0 $38,708 $2,000 $7,558
30 $0 $43,352 $2,000 $10,706
31 $0 $48,554 $2,000 $14,230
32 $0 $54,381 $2,000 $18,178
33 $0 $60,907 $2,000 $22,599
34 $0 $68,216 $2,000 $27,551
35 $0 $76,802 $2,000 $33,097
36 $0 $85,570 $2,000 $39,309
37 $0 $95,383 $2,000 $46,266
38 $0 $107,339 $2,000 $54,058
39 $0 $120,220 $2,000 $62,785
40 $0 $134,646 $2,000 $72,559
41 $0 $150,804 $2,000 $83,506
42 $0 $168,900 $2,000 $95,767
43 $0 $189,168 $2,000 $109,499
44 $0 $211,869 $2,000 $124,879
45 $0 $237,293 $2,000 $142,104
46 $0 $265,768 $2,000 $161,396
47 $0 $297,660 $2,000 $183,004
48 $0 $333,379 $2,000 $207,204
49 $0 $373,385 $2,000 $234,308
50 $0 $418,191 $2,000 $264,665
51 $0 $468,374 $2,000 $298,665
52 $0 $524,579 $2,000 $336,745
53 $0 $587,528 $2,000 $379,394
54 $0 $658,032 $2,000 $427,161
55 $0 $736,995 $2,000 $480,660
56 $0 $825,435 $2,000 $540,579
57 $0 $924,487 $2,000 $607,688
58 $0 $1,035,425 $2,000 $682,851
59 $0 $1,159,676 $2,000 $767,033
60 $0 $1,298,837 $2,000 $861,317
61 $0 $1,454,698 $2,000 $966,915
62 $0 $1,629,261 $2,000 $1,085,185
63 $0 $1,824,773 $2,000 $1,217,647
64 $0 $2,043,746 $2,000 $1,366,005
65 $0 $2,288,996 $2,000 $1,532,166
      . . . And he never caught up!

 

“Four things on earth are small,  yet they are extremely wise:   

Ants are creatures of little strength, yet they store up their food in the summer;   

Coneys [a] are creatures of little power, yet they make their home in the crags;   

Locusts have no king, yet they advance together in ranks;  

A lizard can be caught with the hand, yet it is found in kings’ palaces.” (Proverbs 30:24-28

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