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As the teen years near their end, getting a first job is pretty normal. Once you start getting paychecks, it's also pretty normal to get a checking account. Coupled with the powerful ATM (and maybe debit card), the teen so empowered is ready to shop! But wait! Before you spend everything you earn on a wild spree, consider these ideas about money that might make your life far better in the long run.
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Article
Teen Life
There is definitely something exciting about writing a check for the first time. The idea of signing your name to a piece of paper in exchange for that new game or new outfit is very appealing. The modern check is a promise to the merchant that you have stashed enough money in your bank account to cover the cost of the goods you are buying. Really, nowadays, they swipe your check and, most of the time, get a confirmation of the funds before you ever leave the store.
Still, it’s way cool to be able to sign your name and walk out of the store with a new pair of jeans or a new MP3 player!
But the coolness comes with responsibility. There's that word! Responsibility comes along with all the best privileges in life, so of course it comes along with checking and having money.
The first responsibility is to the merchant. Don't waste the clerk's time or yours by trying to write a check unless you are 100% sure that you have the funds available. Keeping up with your balance and acting accordingly is a full-time task. In the event your merchant doesn't get a balance confirmation before you leave and if you don’t have the money, then you have just bounced a check. Technically, it is a criminal act, but merchants usually want your business, so they charge you a penalty and try to get you to pay back the cost of the goods.
Keeping up with your balance is vital.
While being responsible to the stores where you shop is very important, I would argue that being responsible to your future is even more important. Go with me back in time.
Why did you get a job? Money. Most people reading this live in culture where goods and services are exchanged for money. (As opposed to living in a place where I trade my chicken for your bag of flour, right?) So, having money to spend is a desirable goal. That's why you got the job.
Now comes a hard step. You have to be able to imagine yourself twenty or twenty-five years from now. What do you want your life to look like then? Do you want to be working constantly just to get by, or would you like to have an easier life—a lifestyle that might let you do volunteer work to help others, one that would provide some free time to spend with your friends and family? Most people will say they want the second option!
What’s that? You say you want to be rich? Okay, that's going to take more discipline, but it's really not hard. Craig Strickland, pastor of Hope Church in Memphis, has said that the secret to being financially wealthy is to spend less than you make for a long time. This principle is fundamental to financial independence.
What does this mean to YOU when you break it down?
First, stay out of debt. You can't get ahead if you are paying backwards. Being in debt means you don't work for yourself. You work for the person you borrowed money from. Do you want someone telling you how to spend your money? Well, being in debt means your creditors are telling you how to spend your money. They are telling you to give it to them!
Stay out of debt!
Two exceptions for you to consider IN THE FUTURE: 1. Buying a house. 2. Student loans for college and graduate school.
Being out of debt means you can get ahead. How do you do that. Spend less than you make for a long time. Let me suggest my 10-10-10 plan.
The 10-10-10 Plan for Financial Freedom
Now that you have a job, let's go to the bank. You want a checking account. You need a savings account. I don't have time in this article to tell you how compound interest works. Just trust me: you want some money in an account that earns interest, such as a savings account.
So save up enough to get both types of account—a checking account AND a savings account. Once you open the account, you can get the money if you need it, so you're not out anything by saving up. Actually, you are way ahead.
To open an account, most banks will require you to have a cosigner. This is the adult they are going to expect to be ultimately responsible for the accounts. Be sure to find a bank that has free student checking. You don't have any reason to pay a monthly service charge at this stage of your life.
Now, you have a job, two bank accounts, and your pocket or purse. So, about that paycheck.
This is where the 10-10-10 comes in.
The First 10
The first 10% of your check goes into savings. Listen to me, now. This account is a "once in, NEVER out" account. By "never" I mean not until you are beyond college age when you will probably know more about money than I do. By "never" I mean that this is your "retirement" fund. Don't laugh!
Saving 10% of everything you ever make over the course of your working life IS the secret to being free in retirement to do whatever you want. Does adding $3.00 of a $30.00 paycheck make a difference? Well let me ask you this: Will you miss the $3.00 if you have $27.00 in your wallet? No, you won't! On the other hand, if you deposit 10% of everything into an interest-paying account, by the time you are 25, you'll have a sizable amount of money stashed away.
Yet, more important than the amount of money you save is the habit you will develop. Get in the habit of "saving for retirement" now and it WILL pay off for you in the future.
The Second 10
Now take out that checkbook. Write a check to the church or charity of your choice. Give away 10% of your pay. No, I'm not crazy. It is a practice that goes back to the beginning of civilization. Those who have, help those who need. I'm not going to go into all the rationale for being charitable, but you really make society better when you give away something to people who are in need. Do it.
Who should you give to? Find a church, school, or charity that is doing something you believe in (and I could rant about being for something, not against everything, but that will be a different article). If you are not sure if a US charity is trustworthy, ask to see their 501(c)(3) certification letter (or the equivalent). The U.S. IRS doesn't give these away to just anyone. If the organization has one, they’ve at least gone through a lot of work to get it.
The Third 10
Now, back to the checkbook. It is now time to play a trick on yourself. You'll need an index card or something to handle the third 10%. You need to hold back 10% of your check for big-ticket items that you haven't realized you need, yet. This is your "emergency" fund. Like if you lose your cell phone and need to replace it!
So write down on your index card the amount equal to 10% of your check. Add this amount to whatever other amount is on your "emergency fund" card. How this works is that you NEVER spend money out of the checking account that makes the checking account balance go below the amount on your emergency fund card.
Now, here's where the fun comes in! YOU get to decide what an emergency is! Need a new guitar amp? Is it an emergency? Since you've been holding back 10% each payday, your "emergency fund" has enough money in it to buy the amp!
See how the third 10% "emergency fund" works? It's your money that you are holding back for big-ticket items. Sometimes you know what you are saving for. Sometimes you don't. As an adult, emergencies aren't as fun, but if you use this practice, you'll be ready. When the refrigerator blows up, if you've got a good "emergency fund," you're okay.
As a teen, the third 10% can be fun, so DO it. Learn the habit. Then, when you get invited out of the blue to a formal, you have the cash to buy the dress you really wanted to buy, not the one on sale.
Freedom 70
The rest of your paycheck—the 70% left after the 10-10-10 plan—is yours to blow on fast food, gas, iTune, CDs, clothes, movies, and whatever. Since you're not in debt, you are free to do anything you like with your money.
I promise you if you learn the 10-10-10 habit as a teen consumer, you will be heading for a life of financial freedom, which will ultimately allow you to enjoy living more and free you to spend time with friends and family. So be smart! Develop the 10-10-10 habit now.
Copyright 2007, Bill Snodgrass. All rights reserved.
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