Recently I have read a blog post from one of the lovable finance blogs regarding an email the blogger received from a teen on savings and spending. I thought that this teen’s situation and questions are somewhat similar to what I had experienced in the past two years, thus I left an equitable comment in that post in hopes that it would clarify and better the teen’s financial literacy in this topic.
The original blog post is written by Teenage Investing – The First Step is Always The Hardest
And this is the actual comment I left:
Hi Teenage Investor!
Interesting article here! I myself will be surpassing the ‘teen’ age in another two months so I warrant I am still eligible to leave a comment on this perspective! 🙂
Firstly, I take my hats off Reader A for his courage and dedication in taking his first step in financial independence journey too! Please keep it up!
Secondly, being a teen (still), I have tried almost all the recommended ways to save and spend efficiently and I have found out that there is one way that seems most feasible to me(and working)- being to Plan to Save, and Save to Spend.
Since the allowance is already ‘shortchanged’ in a sense, the most important thing to do first is to plan your expenses (needs) to save the rest. This will include transport, meals in school and outside, school textbooks/stationery, class funding, etc.
The good thing here is getting allowances from parents means the absence of CPF contributions, income tax, and of course, there is no need to give your parents your allowance (back?) haha! This is already a big amount of cutback in your cash outflow!
Once you have these planned out and saved the rest, please go ahead and spend as you like.
Yes. What is in your mind right now must be: the rest should always be saved. HOWEVER, if I want to buy something else out of my needs, I can only take out a cap of 20-40% of all the savings for it.
This percentage should be the average of ‘wants’ expenses you spent in the recent months. If you would like to trim your spending from today onwards, you can reduce the threshold, etc. However, stick to that percentage once you set it. Did I mention that discipline is the key here, in fact it is required in the whole of your financial journey. 😉
Going back, this will also mean the 20-40% should be set into a separate account if possible and accumulate monthly until Reader A wants to use it.
And he, can spend anything in the world with that 20-40%. No strings attached.
I called it savings instead of emergency fund as it is a subset of savings, which means saving comes first.
After reading this and implementing, I hope Reader A will see and be marvelled at how his net worth and savings wealth accumulates over time while he continues to study more about investing topics to learn to compound this war chest in near future!
The Independent Abecedarian
On the other hand personally, I have been using YNAB as my readers will know, to obtain a report on the average of my spending in each category. This has greatly allowed me to know how much I spend on everything and if I need to trim any part of my cash outflow. This also made me save more consistently since I could visualize the final outcome and goals every month. However, you could always use free alternative such as Mint, GnuCash, MoneyDance, BudgetSimple, or even Open Officer/Microsoft Excel (just transfer the expenses you typed from notes app into them once you’re back).
Lastly, Dream Big and Stay Disciplined (or pay for it)! 😉
The Independent Abecedarian