When you leave high school, you’re going to be thrown into a world where money is much more important and complicated than it’s ever been before. You’ll enter the professional world and need to know how to manage your own finances, cut expenses, and live within your means. If you don’t know how to keep track of your money or build a savings instead of living paycheck to paycheck, you need to learn. All of this is difficult enough already, but if you have no guide to help you get started, it might seem impossible. Below are ten things that I think every high school student should know before graduating so that they can begin their independent lives successfully and without facing avoidable financial hardships.
1. Know the difference between what you need and what you want
Up until a certain point in our youth, most of us only spend our own money on things that we want like games, candy, movie tickets, clothing our parents won’t buy us, and random tiny things that people don’t really have any need for. However, at some point, we all begin to spend our money on things we need like food, electric bills, clothing for the real world, shoes for when ours are completely worn out, and the boring things our parents always seemed to somehow provide for us when we were younger. When we reach this point where we begin paying for our needs, it’s important to remember that we can’t always afford the “wants” on top of those “needs.” In order to be smart with your spending, you’ll have to identify your needs and wants, determine which are most important, and use your money accordingly.
2. Take cheap transportation
An example of a “want” versus a “need” is the debate over whether to take a bus, subway, or taxi. If you’re someone who chooses the most expensive option most frequently, try to cut down on your spending slowly but surely by choosing cheaper modes of transportation. If you can take the cheapest option every time, you’ll save more money than you could imagine, and you’ll be able to spend it on something way better than transportation.
3. Create a budget
You’ll probably find, once you start paying for your needs and trying to add a few wants onto your tab as well, that you’re running out of money faster than you can keep track of where it’s going. When you begin thinking about your money regularly and try to pinpoint where you spend too much or where you can spend less, a budget will be extremely useful to you. Start by saving receipts for a few months straight, and once you’ve accumulated enough, you can go through them and see how much you spend on certain things each month.
A budget usually consists of categories of spending that can be as specific or general as you’d like, such as “food,” “clothes,” “transportation,” “insurance,” “entertainment,” and “phone.” You’ll also have categories of income like “part-time job,” “full-time job,” and “allowance.” Once you look through your receipts and bills, you’ll be able to determine how much you spent on each category per month and estimate how much you will spend on those in the coming months. For example, if, in one month, you spend $400 on food and the next you spend $500, you can look at why you spent more one month and less the other. If you find that the $500 can be chalked up to several expensive meals, then $400 might be a more desirable goal to set for upcoming months. However, if you think you usually eat expensive meals and the $400 month was an anomaly, set your budget for $500 a month and try to wean yourself off of your extravagant spending. If you simply set a lower budget for yourself right away, you probably won’t be able to stick to it, and you’ll end up with much less money at the end of a month than you intended.
4. Start building a cushion as early as possible
Everyone who give financial advice will tell you that saving money now will help you immensely in the long run. If you tuck away a little money after each paycheck, week, or month, you’ll see a small savings turn into a large sum of money. Some people call this a “rainy day fund” to be used when you run into financial hardship. If you lose a job, have to take a trip unexpectedly, have unexpected medical costs, need to move, or run into any situation that might require a large chunk of money, you’ll be so grateful that you had the foresight to save some of what you’ve earned rather than spending it all each month. If you keep even $20 a week for a year, you’d have a little over $1,000 by the end of that year, and if anything goes wrong or if you have any unexpected expenses, you’ll have a way to easily pay for them. The more you set aside, the larger your “rainy day” can be, and you might even be able to afford some “wants” you’ve been trying to save up for. However, it’s best to save more in preparation for big purchases in addition to an emergency fund so that you don’t spend your cushion money on a flat screen and then have nothing left when you need it most.
5. Open checking and savings accounts
If you don’t already have one, you should open a checking account as soon as you can. It’s nearly impossible to save money if you keep it somewhere that you can immediately access, and it’s much safer to keep your money in a bank than in rolls under your mattress or in a shoebox. You’ll also need a bank account in your professional life in order to cash and deposit paychecks, and some companies actually deposit paychecks into bank accounts automatically each payday, so you’ll definitely need an active checking account if you’re getting paid regularly. You should also consider opening a savings account so that you have a place to put your money that you want to save each month. This way it will be separate from your checking, so you won’t accidentally dip into the money you’re trying to save, and it will accumulate interest over time, making your balance go up slightly more each month. At first, the interest will not be substantial, but over time, and the more you place in your account, the more “extra money” you’ll receive simply for having money in savings.
6. Know how to balance and use a checkbook
A lot of people require payments in the form of check if they’re trying to get paid directly into their own bank accounts. If you’re paying rent or bills, you might end up needing to know how to write checks, and that means that you’ll also need to know how to balance your checkbook. This simply means that you should keep track of how many checks you write each month and for what amounts so that you can make sure it all adds up at the end of each month. There are instances of fraud where people cash fake checks using your bank information, and if you only look at your bank statement, you might not notice that a check has been cashed that you never wrote. To avoid fraud and keep tabs on your checks, make sure you keep a book or make a digital document to track them and compare the list you make with your bank statements.
7. Protect your information
Your banking information can be stolen easily and at any time, so be cautious when doing anything with your money. If you use a debit card, be wary of pin pads at stores. They’ve been hacked countless times and on massive scales, so if you can avoid it, don’t put in your pin number. Instead, if you have a debit card, you should be able to choose “credit” when checking out rather than “debit,” and you’ll need to sign rather than punching in your pin. The only time that I use my debit card is for ATM withdrawals, but even still, I used it once at a store when I didn’t have a credit card or cash on me, and a month later, my account was hacked, and I was missing more than $400. The bank reimbursed the money, but you should know that this happens to almost everyone at some point, and not using a debit card to make any purchases is a good way to avoid it. Nothing is fool-proof, though, so just as you do with your checkbook, check your bank statements each month to make sure that there isn’t any unauthorized activity.
8. Use cash instead of cards whenever possible
In addition to avoiding using debit cards to make purchases, if at all possible, you should avoid using credit cards as well for a different reason. Studies have shown that when we use credit cards, we’re less aware of the tangible cost of what we’re spending, so we’re more likely to spend more when swiping a card than if we use cash. Cash allows you to see exactly how much you’re spending, and the total sinks in much more when you’re handing over three $20s rather than a piece of plastic that you don’t need to worry about paying off until later. Be careful when spending, and be aware of how much something actually costs and whether you can afford it. You should also use cash on small purchases as much as possible. A credit card bill can seem manageable until you forget to factor in the ten times you spent $15 here and there, so don’t get caught off guard by putting small items on your card and seeing them add up at the end of the month.
9. Pay off credit card bills on time – and pay more than the minimum
If you decide to have a credit card, make sure that you know everything you need to know before you apply for one or start using it for purchases. Credit cards are great to have because they’re safer than debit cards, and they give you the opportunity to build credit. Your credit score is determined by a number of factors, but in terms of credit cards, if you pay your credit card bill each month without missing a payment, your score goes up. You can pay a percentage of your bill, or you can pay it in full, and if you pay it in full, your credit score goes higher. You’ll need a good credit score when taking out loans, and buying real estate, cars, and other high-priced items. The better your credit score, the more likely you are to get a better price for these types of items because the people selling them to you will trust you to pay them everything you owe just as you’ve paid off your credit card bills each month. Your credit score is essentially your trust score – the more trustworthy you are to pay off debts, the higher your score, and the higher your score, the more people will trust you to continue paying off your debts.
Just remember that credit cards are not money. They’re a safe way to pay for things without using information directly related to your bank account because they don’t take money from your account. They’re just debt that you need to be able to pay off each month, so use them wisely and only if you have more money in your checking account than you’ve spent with your credit card.
10. Pay your bills on time
Just as with your credit card bills, be sure to pay off your other bills on time each month. These can also impact your credit because companies will keep records of your payment history, so if you’re not paying on time, your score can go down. You might also begin being charged more for services if you’re an unreliable client. A bonus of paying on time each month is that you can periodically call to negotiate new prices if you’re unhappy with how much you’re paying or if a service’s price goes up. If your cable bill goes up $20, for instance, if you’ve been making regular and full payments, you might be able to talk your cable company into leaving your service at the old price. Your payment history also gives you a bargaining chip in that you can threaten to shut off your cable unless the company gives you the price you want. It doesn’t always work, but it can, especially if they’re counting on your regular payments.
-Hope Swedeen
What are some methods that you use to try to save money? What are some questions that you still have about finances?
1. Know the difference between what you need and what you want
Up until a certain point in our youth, most of us only spend our own money on things that we want like games, candy, movie tickets, clothing our parents won’t buy us, and random tiny things that people don’t really have any need for. However, at some point, we all begin to spend our money on things we need like food, electric bills, clothing for the real world, shoes for when ours are completely worn out, and the boring things our parents always seemed to somehow provide for us when we were younger. When we reach this point where we begin paying for our needs, it’s important to remember that we can’t always afford the “wants” on top of those “needs.” In order to be smart with your spending, you’ll have to identify your needs and wants, determine which are most important, and use your money accordingly.
2. Take cheap transportation
An example of a “want” versus a “need” is the debate over whether to take a bus, subway, or taxi. If you’re someone who chooses the most expensive option most frequently, try to cut down on your spending slowly but surely by choosing cheaper modes of transportation. If you can take the cheapest option every time, you’ll save more money than you could imagine, and you’ll be able to spend it on something way better than transportation.
3. Create a budget
You’ll probably find, once you start paying for your needs and trying to add a few wants onto your tab as well, that you’re running out of money faster than you can keep track of where it’s going. When you begin thinking about your money regularly and try to pinpoint where you spend too much or where you can spend less, a budget will be extremely useful to you. Start by saving receipts for a few months straight, and once you’ve accumulated enough, you can go through them and see how much you spend on certain things each month.
A budget usually consists of categories of spending that can be as specific or general as you’d like, such as “food,” “clothes,” “transportation,” “insurance,” “entertainment,” and “phone.” You’ll also have categories of income like “part-time job,” “full-time job,” and “allowance.” Once you look through your receipts and bills, you’ll be able to determine how much you spent on each category per month and estimate how much you will spend on those in the coming months. For example, if, in one month, you spend $400 on food and the next you spend $500, you can look at why you spent more one month and less the other. If you find that the $500 can be chalked up to several expensive meals, then $400 might be a more desirable goal to set for upcoming months. However, if you think you usually eat expensive meals and the $400 month was an anomaly, set your budget for $500 a month and try to wean yourself off of your extravagant spending. If you simply set a lower budget for yourself right away, you probably won’t be able to stick to it, and you’ll end up with much less money at the end of a month than you intended.
4. Start building a cushion as early as possible
Everyone who give financial advice will tell you that saving money now will help you immensely in the long run. If you tuck away a little money after each paycheck, week, or month, you’ll see a small savings turn into a large sum of money. Some people call this a “rainy day fund” to be used when you run into financial hardship. If you lose a job, have to take a trip unexpectedly, have unexpected medical costs, need to move, or run into any situation that might require a large chunk of money, you’ll be so grateful that you had the foresight to save some of what you’ve earned rather than spending it all each month. If you keep even $20 a week for a year, you’d have a little over $1,000 by the end of that year, and if anything goes wrong or if you have any unexpected expenses, you’ll have a way to easily pay for them. The more you set aside, the larger your “rainy day” can be, and you might even be able to afford some “wants” you’ve been trying to save up for. However, it’s best to save more in preparation for big purchases in addition to an emergency fund so that you don’t spend your cushion money on a flat screen and then have nothing left when you need it most.
5. Open checking and savings accounts
If you don’t already have one, you should open a checking account as soon as you can. It’s nearly impossible to save money if you keep it somewhere that you can immediately access, and it’s much safer to keep your money in a bank than in rolls under your mattress or in a shoebox. You’ll also need a bank account in your professional life in order to cash and deposit paychecks, and some companies actually deposit paychecks into bank accounts automatically each payday, so you’ll definitely need an active checking account if you’re getting paid regularly. You should also consider opening a savings account so that you have a place to put your money that you want to save each month. This way it will be separate from your checking, so you won’t accidentally dip into the money you’re trying to save, and it will accumulate interest over time, making your balance go up slightly more each month. At first, the interest will not be substantial, but over time, and the more you place in your account, the more “extra money” you’ll receive simply for having money in savings.
6. Know how to balance and use a checkbook
A lot of people require payments in the form of check if they’re trying to get paid directly into their own bank accounts. If you’re paying rent or bills, you might end up needing to know how to write checks, and that means that you’ll also need to know how to balance your checkbook. This simply means that you should keep track of how many checks you write each month and for what amounts so that you can make sure it all adds up at the end of each month. There are instances of fraud where people cash fake checks using your bank information, and if you only look at your bank statement, you might not notice that a check has been cashed that you never wrote. To avoid fraud and keep tabs on your checks, make sure you keep a book or make a digital document to track them and compare the list you make with your bank statements.
7. Protect your information
Your banking information can be stolen easily and at any time, so be cautious when doing anything with your money. If you use a debit card, be wary of pin pads at stores. They’ve been hacked countless times and on massive scales, so if you can avoid it, don’t put in your pin number. Instead, if you have a debit card, you should be able to choose “credit” when checking out rather than “debit,” and you’ll need to sign rather than punching in your pin. The only time that I use my debit card is for ATM withdrawals, but even still, I used it once at a store when I didn’t have a credit card or cash on me, and a month later, my account was hacked, and I was missing more than $400. The bank reimbursed the money, but you should know that this happens to almost everyone at some point, and not using a debit card to make any purchases is a good way to avoid it. Nothing is fool-proof, though, so just as you do with your checkbook, check your bank statements each month to make sure that there isn’t any unauthorized activity.
8. Use cash instead of cards whenever possible
In addition to avoiding using debit cards to make purchases, if at all possible, you should avoid using credit cards as well for a different reason. Studies have shown that when we use credit cards, we’re less aware of the tangible cost of what we’re spending, so we’re more likely to spend more when swiping a card than if we use cash. Cash allows you to see exactly how much you’re spending, and the total sinks in much more when you’re handing over three $20s rather than a piece of plastic that you don’t need to worry about paying off until later. Be careful when spending, and be aware of how much something actually costs and whether you can afford it. You should also use cash on small purchases as much as possible. A credit card bill can seem manageable until you forget to factor in the ten times you spent $15 here and there, so don’t get caught off guard by putting small items on your card and seeing them add up at the end of the month.
9. Pay off credit card bills on time – and pay more than the minimum
If you decide to have a credit card, make sure that you know everything you need to know before you apply for one or start using it for purchases. Credit cards are great to have because they’re safer than debit cards, and they give you the opportunity to build credit. Your credit score is determined by a number of factors, but in terms of credit cards, if you pay your credit card bill each month without missing a payment, your score goes up. You can pay a percentage of your bill, or you can pay it in full, and if you pay it in full, your credit score goes higher. You’ll need a good credit score when taking out loans, and buying real estate, cars, and other high-priced items. The better your credit score, the more likely you are to get a better price for these types of items because the people selling them to you will trust you to pay them everything you owe just as you’ve paid off your credit card bills each month. Your credit score is essentially your trust score – the more trustworthy you are to pay off debts, the higher your score, and the higher your score, the more people will trust you to continue paying off your debts.
Just remember that credit cards are not money. They’re a safe way to pay for things without using information directly related to your bank account because they don’t take money from your account. They’re just debt that you need to be able to pay off each month, so use them wisely and only if you have more money in your checking account than you’ve spent with your credit card.
10. Pay your bills on time
Just as with your credit card bills, be sure to pay off your other bills on time each month. These can also impact your credit because companies will keep records of your payment history, so if you’re not paying on time, your score can go down. You might also begin being charged more for services if you’re an unreliable client. A bonus of paying on time each month is that you can periodically call to negotiate new prices if you’re unhappy with how much you’re paying or if a service’s price goes up. If your cable bill goes up $20, for instance, if you’ve been making regular and full payments, you might be able to talk your cable company into leaving your service at the old price. Your payment history also gives you a bargaining chip in that you can threaten to shut off your cable unless the company gives you the price you want. It doesn’t always work, but it can, especially if they’re counting on your regular payments.
-Hope Swedeen
What are some methods that you use to try to save money? What are some questions that you still have about finances?
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