Budgeting for Teens: An Easy Guide to Teen Budgets (2023)

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Last Updated on December 17, 2022 by Rebecca Lake

Learning how to budget is an important life skill and the sooner you master it, the better. 

If you’re the parent of a tween or teen, you’ve got a great opportunity to help them build financial literacy skills. Teaching middle school students, high school students or college students how to manage their financial obligations early can help them develop good money habits that will serve them well in their adult life.

Budgeting for teens isn’t the same as budgeting for adults. After all, it’s unlikely that your teen has a mortgage in their name or a family to support. But learning how to make a spending plan in their teen years is something young people can benefit from. 

The good news is that budgeting as a young adult doesn’t have to be hard. And hands-on experiences can be the best way to learn.

If you’re ready to give your teens a head start, then teaching them to make a monthly budget is a great introduction to personal finance. 

What Is a Budget and Why Is Budgeting Important?

When teaching teens how to make their first budget, defining what a budget is and what it’s designed to do is an important part of the process. 

A budget is a plan for spending money each month. It’s a blueprint for deciding how to spend your income. 

This is one of the simplest financial lessons teens (or adults) can learn, yet it’s something many people struggle with. Approximately 14% of Americans don’t keep a regular budget, according to a Debt.com survey.

So why is budgeting for teens important? 

Teens can benefit from learning to budget because it can directly affect their financial future. The spending habits teens develop when they’re young can carry over to adulthood and how they approach financial planning. 

For instance, no teen wants to have to break into their piggy bank and spend everything they have to enjoy some fun with friends or buy new clothes. And a teen who learns the value of spending early on is likely to keep that money habit all their lives. 

Learning to budget at a young age can also help teens make better choices about how to handle their own money concerning things like credit and debt. Teens can also learn how to set money goals and work toward them. 

And if you have young children who are not yet teens, you can still teach them about budgeting for kids. Preschool-aged kids are not too young to start picking up money management skills, according to the Consumer Financial Protection Bureau.

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Budgeting for Teens Step-by-Step

As mentioned, teen budgets are likely to look very different from an adult’s monthly budget. However, the steps involved in budgeting for teens aren’t that different. 

Here’s how to help teens make their own budget with minimal stress. 

1. Start with income

The first thing teens need to do to make a budget is to understand their total income. This is one of the most important steps in budgeting, so you don’t want to skip this. 

Typical sources of income for a teen can include:

• Money earned from a part-time job
• Earnings from side hustles
• Money given by parents (i.e., allowance, cash for good grades, birthday gifts, etc.)

The amount of money might be a few hundred dollars or a few thousand. Either way, it’s a good idea to teach teens who get a paycheck the difference between gross income and net income. 

Gross income is the money you earn before taxes or other deductions; net income is the money you get to keep on payday. Net income is what they’ll use to budget. 

Once your teen knows how much income they have to work with, they can move on to the next step. 

Related post: How to Start an Etsy Shop as a Teenager

2. Add up expenses

The next step in budgeting for teens is adding up expenses. Expenses include everything your teen spends money on during the month. 

For example, teen budgets might include things like:

• Gas
• Food
• School supplies
• Clothes
• Cell phone bills
• Car insurance (or a car payment)
• Personal care items (i.e., hair products, skincare products, makeup, etc.)

So how do you help your teen figure out what they’re spending? 

If they have a checking account, the easiest way might be to have them link their account to a budgeting app. Money apps can link to your teen’s bank account and record expenses automatically. 

Aside from budgeting apps, teens can also track their expenses using:

• Notebook or ledger book
• Budget binder or budget planners
• Printable budget worksheets for teens
• Excel budget worksheet

Tracking expenses is a great way for teens to see how much money they have to budget and where that money goes.

3. Make budget categories

The next tip in budgeting for teens is separating expenses into categories. 

Budget categories are groups of expenses within your budget. How many budget categories your teen has can depend on where they spend their money. 

A good rule of thumb is to start with these budget categories:

• Fixed expenses
• Variable expenses
• Discretionary spending
• Savings

Fixed expenses are expenses that stay the same month to month. So if your teen pays their cell phone bill or car insurance, those amounts might not change.

Variable expenses are expenses that have to be paid monthly but may be a different amount each time. So, for a teen that might include things like school supplies or gas.

Discretionary spending is “fun money” — it’s the money your teen spends on things that are wants, versus basic needs. So clothes, fast food and entertainment would go here.

Savings is just that — money your teen saves. So why does a teen need to budget for savings?

Having money set aside is important for a few reasons. For one thing, it can help your teen be prepared for unexpected expenses. 

If their car breaks down, for instance, having an emergency fund means they don’t need to ask you to pay for repairs. Saving one to two months’ worth of expenses in an online bank account might be a good starter emergency fund amount for a teen.

Saving early can also help teens work toward long-term savings goals. 

A teen who wants to get a degree without taking on student loans, for example, might save money for college expenses or trade school. And you could help them by opening a college savings account on their behalf.

Or maybe they want to buy their first car or a new laptop. Encouraging them to save up for that expense can help them recognize the value of a dollar. 

4. Choose a budgeting strategy

If your teen is using budget categories, the next step is deciding how much money to put into each one. There are different strategies to use when budgeting for teens and it’s helpful to experiment with different options.  

For example, there’s pay yourself back budgeting. This strategy has you think of the cost of essentials as debt to yourself. 

So, say your teen has a savings account that they occasionally dip into to cover expenses. When they get paid, they would first pay back that amount to their savings before spending anything. 

Another budgeting strategy is the 50-30-20 method. This strategy requires a little bit of math dealing with percentages but it can help teens split their money more strategically. Using this method, teens would budget:

• 50% of their income to essentials
• 30% to discretionary spending
• 20% to savings (or debt, if they have)

A budget calculator can help with dividing up income so teens can see if they have enough money to cover needs first, then wants and savings. 

Teens who regularly receive cash from allowance, side gigs or as gifts might prefer envelope budgeting instead.

The envelope budgeting system works by dividing cash into different envelopes that represent budget categories. So, for example, your teen might have cash envelopes for shopping, eating out, personal care, gas, etc. 

Depending on how much they budget for spending in each category, they’ll fill the envelope with that amount. There are lots of great videos on social media on how this works. For example, you can search for “cash stuffing” on TikTok to get visual examples.

@cashstuffingfix #cashstuffing #cashenvelopes #budgetingtips #adhdtok #adultadhd #FritoLayRickRoll #StepandFlex #k18hairflip ♬ original sound – CashStuffingFix

Any extra cash left in their budget could go to savings. Meanwhile, once the cash in each envelope is spent, they wouldn’t be able to spend anything else in that budget category for the rest of the month.

Pro tip: Cash envelope wallets can help teens keep their envelopes organized in one place. 

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5. Make adjustments as needed

Budgets are not designed to be set in stone. Instead, they’re meant to be flexible and adaptable.

Once your teen has made their first budget, encourage them to stick to that budget as much as possible. Then, they can sit down the next month and compare how much they budgeted to what they spent. 

That can help them figure out where they might need to cut back if they’ve overspent. And if they have extra money left in their budget, you can discuss different ways they might put it to work. 

Pro tip: Scheduling a monthly budget “date” with your teen can be a great way to check in with them financially and answer any money questions they might have. 

Tips for Teaching Teens About Money

Budgeting is just one part of helping kids learn more about personal finance. There are some other topics you might want to focus on to help teens have a better understanding of how money works. 

Break down banking

If your teen has a checking account, then they might already know a little about how banking works. But if they don’t have a checking account yet or they only have a savings account, then it’s helpful to introduce them to some basic concepts.

For example, you could explain:

• Differences between checking accounts and savings accounts
• How a credit union is different from a bank
• What you can and can’t do with a debit card
• Why the interest rate on a savings account matters

Opening a high-yield savings account can be a great way to encourage them to commit to a savings program. And you can also help them open a teen checking account so they have a way to pay bills or make purchases. 

Ready to get a great rate and grow your savings? Open a CIT Bank Savings Connect Account today to start earning a competitive rate on deposits, with no monthly fee!

Cover credit basics

Teens may not have a credit card yet but it’s not too early for them to learn how credit works. 

Some of the credit-related topics to cover when discussing budgeting for teens include:

• What is a credit report?
• What are credit scores and how do they work?
• Why do credit ratings matter?

Sharing a peek at your credit report might be the easiest way to explain it. But if you’re not comfortable sharing that kind of personal information you could use a sample credit report like this one from Experian.

Discuss debt

Debt is related to credit and credit scores and it’s good for teens to know how to avoid it. 

When talking to kids about debt, you can touch on:

• What debt means
• Difference between good debt and bad debt
• Why debt can be harmful, financially
• How the interest rate can affect the cost of debt

You can also talk about debt payment methods, like the Dave Ramsey debt snowball or the debt avalanche. And if you have college-bound kids, you might want to discuss student loans and the financial impact they can have. 

Compare saving vs. investing

Learning to save is a good money habit for teens to get into. But they should understand that saving and investing aren’t the same thing.

Money that’s saved usually sits in a bank account. Money that’s invested is put into the market. 

So, some of the things you can talk about when discussing investing include:

• How compound interest works and why it matters
• Different types of investment accounts
• Investment risk

A good way to give teens exposure to investing is to encourage them to invest some of their own money. So if you have a teen who has earned income, for example, you could open a custodial IRA for them. Or you might set up a custodial brokerage account so teens can learn about stock trading. 

Budgeting for Teens FAQs

How much should a teenager spend per month?

Every teen has their own financial situation, whether they have no bills or have to help out their family with the bills. Teens will have their own budgets, but a good rule of thumb teens should aim for is to put at least 20%of their earnings into their savings before spending the rest.

How should teens budget their money?

Budgeting for teens isn’t one-size-fits-all. Teens should budget their money in a way that works for their lifestyle and spending habits. With that being said, the 50/30/20 rule is a popular budgeting method. Financial apps can make budgeting for teens easier in the modern world since they can link the app to their bank account to track spending automatically.

How much money should a 14-year-old have saved?

The amount a teen should have saved can depend on when they started saving and how much income they have. Saving 10% of income is a good place to start. So a 14-year-old who makes $200 a month should save $20 of that money. Once teens get used to saving 10% of their income, they can bump it up to 20% or even more.

What should a 15 spend their money on?

Fifteen-year-olds should spend their money on things like school trips, games, gaming equipment, college application fees, hobbies and things that they enjoy. Of course, teens need to balance spending money on fun while also keeping savings and other financial goals in sight. 

Final thoughts on budgeting for teens

Teaching teens how to budget is an important first step in helping them develop the financial skills they’ll need as adults. Teens who learn to budget consistently, focus on saving and avoid debt may find it easier to achieve financial freedom later. And as a parent, seeing your kids succeed financially can be a great return on the investment of your time in guiding them. 

Need more money tips? Read these posts next:

• 100+ Sinking Funds Categories to Help You Master Budgeting
• FamZoo Prepaid Debit Card Review: Is It the Best Debit Card for Kids?
• How to Budget Using the Digital Envelope System
• 90+ Cash Envelope Categories to Help You Budget More Effectively
• 30-30-30-10 Budget Explained (Pay Your Bills and Still Have Fun!)

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Complete Guide to Budgeting for Teens

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