A budget, sometimes called a “spending plan,” is an outline of anticipated income and expenses that can be used to track actual cash flow and set spending goals. A budget is an important financial tool that can help your teen:
Plan for expenses. Short-term expenses happen in the next month; mid-term expenses occur in between one month and a year; long-term expenses are longer than one year. Cut spending. A budget shows you just how much money you're spending on certain things. When you see this, you might have an incentive to cut spending on certain things.
Spend wisely. If your teen is spending more than he or she earns, something will have to change; namely, he or she will have to earn more, spend less, or a combination of the two. If your teen earns more than he or she spends, help him or her determine what to do with the surplus (e.g., save money for a car, make an investment, etc.).
Save for future goals. Help your teen “find” the money to set aside for future expenses. With a budget, you can identify areas of extra spending and reallocate that money towards a future goal.
Develop lifelong money management skills. It is priceless to learn as a teenager how to save for a goal. For most people, this is not as simple as setting aside a certain chunk of money each paycheck; it usually involves making spending choices, and prioritizing savings over wants.